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AfriSam is said to be talking to partner to secure PPC deal

Prospect of cash injection could strengthen AfriSam’s position.

AfriSam Group is in negotiations with an equity partner to recapitalise the company and enable South Africa’s second-biggest cement maker to push through a merger with larger rival PPC, according to two people familiar with the matter.

Closely held AfriSam has a letter of intent from an investment company based in the Americas that’s willing to put up new funding, said the people, who asked not to be named as the talks are private. The deal could be concluded within the next 12 weeks, they said. The people declined to name the potential investor as an agreement may not be reached.

PPC shares rose 3.7% to R5.08  as of 10:21am in Johannesburg, paring the year’s losses to 8.1% and valuing the company at R8.1 billion ($623 million).

The prospect of a partner with more financial strength could enable AfriSam to put forward a new merger proposal to PPC that would be more attractive to management and shareholders in the Johannesburg-based company. After the collapse of a second round of talks last week, PPC gave AfriSam until close of business on Friday to come up with a way to resolve the impasse. The two sides have previously failed to agree on how to value the deal and who will control the combined entity.

Read: PPC shares fall after cancellation of proposed merger with AfriSam

If PPC management including chief financial officer Tryphosa Ramano remain resistant to a merger, AfriSam could attempt a hostile takeover, the people said. The two companies restarted talks in February as a way to deal with falling demand for cement in South Africa and an influx of new competitors. The chief executive officers of both companies have resigned during the negotiations.

“PPC’s focus is firmly on unlocking long term sustainable shareholder value and we would review any proposed corporate action in light of our ability to achieve this,” spokeswoman Siobhan McCarthy said in emailed comments.

The Public Investment Corporation, Africa’s biggest money manager with almost R1.9 trillion in assets, owns 60% of AfriSam. The second-largest shareholder is Phembani Group, the investment company co-founded by MTN Group chairman Phuthuma Nhleko, with a 31% stake. Nhleko is also chairman of AfriSam.

PPC reported a 5% sales increase to R9.6 billion for the year through March, alongside a net loss of R295 million. The company has production capacity of about 11.5 million metric tons a year across 11 factories in six countries, compared with AfriSam’s 5.5 million metric tons.

© 2017 Bloomberg

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