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PPC says AfriSam’s new merger proposal falls short

Chairman says offer price “fundamentally undervalues” company.

South African cement maker AfriSam launched a new bid for PPC on Monday with an offer that valued its rival at about R9.2 billion ($709 million), but an independent PPC board said it was too low.

It was AfriSam’s third attempt in three years to merge with PPC and create a pan-African cement group with assets across six countries, after its previous bid was abandoned in February.

Under the revised all-share merger proposal, the deal values PPC at about R9.2 billion or R5.75 per share, and gives AfriSam an enterprise value of R7.5 billion.

As part of the proposal, the African unit of Canada’s Fairfax Africa Holdings offered to buy 22% of PPC at R5.75 per share for R2 billion and also give AfriSam a cash injection to reduce the merged entity’s debt.

The proposal could still be put to PPC shareholders but the initial response of PPC’s independent board, created to assess the AfriSam merger, was that the offer was too low. PPC said it would consider the offer but also said it had received rival offers.

“The preliminary observation of the independent board regarding the partial offer from Fairfax is that, as indicated through prior engagements with AfriSam on a possible merger, the current R5.75 offer price fundamentally undervalues PPC,” PPC’s Chairman Peter Nelson said in a statement.

Avior Capital Markets research analyst Garth Arenz agreed that the offer price was low.

“I think the offer price is too low and with the current PPC share price trading above R5.75 after the announcement, it means that the market also thinks that R5.75 is too low and that a competing offer in excess of R5.75 will be presented to PPC,” Arenz said.

Shares in PPC closed 8.8% higher on Monday at R5.93.

The R5.75 offer price is about 68% less than PPC’s share price in 2014, when AfriSam first proposed a merger. At that time, PPC was trading at R18 a share.

PPC said it had received other offers from trade bidders, one of whom included a potential cash component, to create a pan-African cement giant. It did not name the bidders, saying the talks were confidential.

It said the proposals were “credible and potentially value-enhancing for shareholders to merit careful consideration.”

RECAPITALISATION OF AFRISAM

To make AfriSam’s deal possible, Fairfax would also recapitalise AfriSam by acquiring up to R4 billion worth of AfriSam’s shares, representing 60% of AfriSam’s equity capital and voting rights.

“Among other benefits, the investment by Fairfax Africa will greatly reduce the underlying debt of the merged entity which will have sufficient liquidity and capital to compete in its current markets and selectively target growth opportunities on the continent”, said AfriSam acting chief executive Rob Wessels.

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