The shares of cement heavyweight PPC finished 7.6% lower on Friday after a proposed merger with its rival AfriSam was cancelled.
PPC said negotiations with AfriSam, under the current heads of terms, were called off – effectively putting merger proposal on ice.
Despite the cancellation of the heads of terms, PPC said AfriSam indicated to it that it intends to submit a new proposal regarding a possible deal between the two companies. AfriSam didn’t give reasons for the cancellation of negotiations, which would have led to a formal merger agreement.
PPC shares fell by 7.6% to R4.87 on Friday.
Rob Wessels, the acting CEO of AfriSam, said the company believes that a transaction with PPC “will greatly benefit the stakeholders of both companies”.
“For this reason, we continue discussions with PPC and will explore other alternatives available to us. It remains our belief that a transaction between the two companies offers the local cement industry an opportunity to develop a local cement champion with the required scale, operational efficiency and balance sheet to enable further investment opportunities in South Africa and the rest of the continent,” said Wessels.
In February, PPC announced that it has revived merger talks with its smaller rival AfriSam, after valuation rows in 2014 resulted in both companies ditching their ambitions to combine operations. Read: PPC shares up on merger talks
PPC’s shareholders have been in the dark about the terms of the proposed merger – especially the value of the proposed merger with unlisted AfriSam. Shareholders were also in the dark about AfriSam’s current debt position.
Uncertainty about the proposed merger was heightened after the unexpected resignation in July of PPC CEO Darryll Castle. Johan Claassen was appointed as interim CEO. Read: PPC hit by CEO’s sudden departure
On Monday, PPC will hold its annual general meeting, where shareholders will be able to question the board and management on the collapsed merger. PPC has reiterated that a successful merger would build scale to its assets and create a financially strong and operationally efficient cement maker that is able to invest in growth opportunities.
“Our pipeline of new businesses in Rwanda, and more recently in the DRC and Ethiopia, provide both significant growth opportunity and diversity but also present some start-up risks and liquidity challenges,” said Claassen in a statement.
“All of these need to be reviewed and are receiving our attention as we continue with initiatives to generate and preserve cash on a sustainable basis,” he said.
Market watchers said the timing of the merger is opportunistic, with PPC striking at a time when AfriSam is struggling. Just like other cement makers, AfriSam is battling with government’s low infrastructure spend, tough competition, low cement prices and the dumping of cheap cement from Asia.