Canada-based investment holding firm Fairfax Africa Investments has become the third company to walk away from purchasing the assets of SA’s largest cement producer PPC, leaving Switzerland’s cement titan LafargeHolcim as the sole known bidder.
On Monday, PPC said Fairfax would not proceed with a formal offer to purchase a portion of PPC’s assets, sinking a controversial deal that has garnered shareholder opposition from day one.
Although PPC didn’t give reasons why Fairfax walked away, more than 25% of its shareholders have been vocal in their rejection of its offer. At the centre of the shareholder revolt was Fairfax’s offer to buy R2 billion or 23% of PPC ordinary shares at R5.75/share, which is significantly lower than the R8 to R10 fair value ascribed by shareholders.
The second component of Fairfax’s offer would see it join forces with cement group AfriSam by injecting R4 billion in the latter company to merge with rival PPC. Fairfax’s cash injection and recapitalisation of AfriSam depended on a successful merger with PPC. However, PPC’s board rejected a merger with AfriSam, which has a debt load of R8 billion that would have been halved if a merger with PPC was successful.
Shareholders – among them Prudential Investment Managers, Value Capital Partners, and Visio Capital Management – believe the tie-up with Fairfax undermined PPC’s potential for future growth in SA and the rest of Africa.
Shareholders believe that if PPC continues as a standalone business, its share price has the potential to rise to R12 in the next three years from Monday’s close of R6.55/share.
The R12/share valuation is based on PPC’s recent investments in new and more efficient cement productive capacity in SA and the rest of Africa including Rwanda, the Democratic Republic of Congo, Ethiopia and Zimbabwe. These countries are expected to contribute nearly 50% of group profit within two or three years.
Apart from Fairfax, the PPC board has fielded cash and share offers for its assets from Nigeria’s Dangote Cement and Irish cement giant CRH. All three have now pulled out from acquisition talks.
The expression of interests in PPC has caused large swings in the group’s share price, which has seen lows of R3.49 and highs of R7.55 in the year to December 11. On Monday, its shares fell by 0.61%.
Fairfax’s departure leaves LafargeHolcim still in the running to acquire PPC.
PPC shareholders remain in the dark about LafargeHolcim’s actual offer, but have a vague idea of its ambitions to combine certain African assets by offering a partial cash offer and a special dividend.
Market watchers have questioned whether LafargeHolcim is interested in PPC’s entire business or only its SA or rest of Africa assets. LafargeHolcim, which is one of the world’s biggest cement companies with a cement capacity of 353 million tons at its 2 300 plants, already has a strong presence in SA, Nigeria, Tanzania and Zambia.
PPC said it continues to engage with LafargeHolcim and the engagements “may or may not lead to a firm intention offer”.
Chris Wood, the head of equity at Prudential, which recently raised its stake in PPC to 15.18%, said it will give consideration to any firm offer for PPC.
“We will give consideration to any proposed transaction, whether it be a partial sale or merger, but the deal will need to reflect a suitable premium for PPC’s quality asset base, geographic footprint and growth prospects,” said Wood.