PPC of South Africa Gets Cement Merger Offer From AfriSam

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Updated Thu, 11 Dec 2014 10:03:15 GMT

PPC Ltd. (PPC), South Africa’s biggest cement maker, received an offer to merge from competitor AfriSam Group Pty Ltd. that would create a dominant player in Africa’s second biggest economy and expand on the continent.

“We think a potential merger between PPC and AfriSam would create a formidable cement player,” the Public Investment Corp, Africa’s biggest fund manager and majority owner of AfriSam, said in a statement today. The enlarged company “will contribute meaningfully to South Africa and the continent’s developmental plans.”

The offer was made after a three-month boardroom battle at PPC that wiped about a quarter off the cement maker’s market value. The Johannesburg-based company is seeking a new chief executive officer to replace Ketso Gordhan, who resigned in September after a falling out with the board, and will elect six new non-executive directors at the annual general meeting next month. PPC is considering AfriSam’s merger proposal, the company said in a statement today.

“It just seems opportune for AfriSam, striking while the iron is hot,” Sasha Naryshkine, a money manager at Johannesburg-based Vestact, said by phone. “PPC’s also been having public problems of their own and maybe that’s depressed their valuation.”

PPC shares gained 2.3 percent to 24.54 rand by the close in Johannesburg, valuing the company at about 14.9 billion rand ($1.3 billion). The stock declined 26 percent between Sept. 19, the trading day before Gordhan’s resignation was announced, and yesterday’s close.

Africa Expansion

PPC is expanding in African countries where demand for cement outweighs supply to offset slowing growth in its domestic market. International markets include the Democratic Republic of Congo, Rwanda and Ethiopia. Closely held AfriSam, South Africa’s second biggest cement maker, said last year it’s also developing projects elsewhere on the continent and has operations in Tanzania, Lesotho and Botswana.

“We also think there could be significant synergies,” Pretoria-based PIC said. The company, which manages most of South Africa’s government employee pension funds, owns 66 percent of AfriSam and about 12.6 percent of PPC.

The potential deal may be rejected by competition authorities on the basis that it would create a South African cement company with a dominant market position, PPC ex-CEO Gordhan said by phone. The proposal may be attractive to PPC as combining operations could lead to cost savings, he said. Mava Scott, a spokesman for South Africa’s Competition Commission, didn’t immediately respond to a request for comment.

Market Dominance

“The market share of PPC plus AfriSam would be pretty close to 60 percent,” Gordhan said. The ex-CEO has 1.4 million PPC shares, worth about 35 million rand.

“This deal would help the combined group to close one or two less efficient plants and focus on overlaps,” Wayne McCurrie, a money manager at Johannesburg-based Momentum Asset Management, said by phone. “There is excess cement capacity in South Africa and consolidation in an industry with excess capacity is not unusual.”

PPC sales gained 9 percent to 9 billion rand in the year through September, while profit declined 9 percent to 849 million rand. AfriSam’s website doesn’t contain financial information and a spokeswoman for the company didn’t return a phone call seeking comment.

Gordhan resigned after his attempt to fire Chief Financial Officer Tryphosa Ramano was blocked by fellow directors. Shareholders led by Foord Asset Management then called for the replacement of the entire board, and eventually agreed to a compromise whereby PPC will retain six non-executive directors and elect six new ones.

The company is in the process of hiring a new CEO. Darryll Castle, a former head of commodity trader Trafigura Beheer BV’s mining division, is one of three shortlisted candidates, a person familiar with the matter said today.