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PPC’s rejection of Fairfax offer puts the skid on AfriSam’s debt restructure

After mounting shareholder pressure, the proposed merger between PPC and AfriSam sinks.
AfriSam’s future hangs in the balance after PPC turns its back on a merger with the company. Picture: Supplied

The rejection of a partial purchase of PPC’s assets by Canada-based investment holding firm Fairfax Africa Investments has put an end to a merger proposal between SA’s largest cement producer and its rival AfriSam.

More bruising is that AfriSam’s debt restructuring ambitions are now in limbo.

PPC’s board bowed to shareholder pressure in rejecting Fairfax’s advances, announcing on Wednesday that it will not be recommending the Canadian company’s partial offer to shareholders.

The PPC board also turned its back on a merger with AfriSam as it will not convene a meeting to approve the proposed merger.

This comes as no surprise as PPC shareholders, who own about 25% of the company, rejected the merger proposal saying it undervalued the group, undermined its growth potential and is better as a stand-alone company.

The merger proposal required 75% of shareholder support for it to pass muster.

At the center of the shareholder revolt is Fairfax’s offer to buy R2 billion of PPC ordinary shares at R5.75/share, which is significantly lower than the R8 to R10 fair value ascribed by shareholders.

Read: Why the PPC, AfriSam tie-up is facing shareholder rebellion

PPC’s board said Fairfax’s offer is “not fair and reasonable” after it considered the group’s valuation forecasts, business performance and feedback from shareholders.

This is a significant blow for unlisted AfriSam as the restructuring of its debt hinged on the approval of Fairfax’s offer. In its partial offer for PPC’s assets, Fairfax included a R4 billion recapitalisation of AfriSam on the condition that the merger was successful.

AfriSam has debt of about R5 billion and a further R3 billion owed to shareholders. A successful cash injection of R4 billion from Fairfax and a proposal by shareholders to convert their debt into equity would have reduced AfriSam’s debt substantially.

Read: PPC’s profits boosted by expansion in Zimbabwe, Rwanda

PPC shareholders said the merger would benefit AfriSam more than PPC, as the former’s shareholders appear unwilling to inject further capital.

AfriSam received bailouts from several shareholders in 2012 after facing a smothering R15 billion debt load. At the time, AfriSam’s recapitalisation included the Public Investment Corporation investing R9.3 billion, Phembani injecting an undisclosed amount that scored it a 30% stake and Holcim Switzerland writing off R3.5 billion of its debt.

AfriSam and other cement producers have been buckling under weak cement demand and excess supply in SA. 

Rob Wessels, the acting CEO of AfriSam, recently told Moneyweb that the company will withstand market challenges even if the proposed merger is not successful.

Read: Cement merger ‘will benefit’ AfriSam, PPC shareholders

The merger talks attracted the eyes of Switzerland’s cement group LafargeHolcim and Irish building materials CRH, with both companies showing interest in acquiring PPC’s assets. Although the shape of their offers is not yet clear as they are yet to be presented to PPC shareholders, a bidding war for the company is expected to ensue.

PPC said it will continue its engagements with CRH and LafargeHolcim.

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