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PPC’s watershed moment of shareholder activism

Shareholders of SA’s cement titan successfully push out members of the board.

Like JSE-listed titans Group Five and Net1 UEPS, SA’s largest cement company PPC is having its watershed shareholder activism moment.

PPC is the latest to see a wave of asset managers that are taking an activist approach – flexing their muscles and finally having a say about the direction of the companies they invest in on behalf of clients.

The days of board of directors acting in a deeply autocratic manner and nervous asset managers turning a blind eye to bad company decisions appear to be over, judging from the latest boardroom shake-up at PPC.

On Friday, March 2, PPC chairman Peter Nelson bowed to increasing shareholder pressure by agreeing to step down amid growing concerns about the company’s recent foiled merger with smaller rival AfriSam.

Nelson, who joined PPC’s board in 2015 at a time when PPC was feeling the pinch from its rest of Africa operations, will be replaced by Jabu Moleketi.

Moleketi was a deputy finance minister under the Thabo Mbeki administration and made a transition to the business sector in 2008, serving on several boards including Development Bank of Southern Africa, Brait SE, Remgro, Nedbank Group and Vodacom Group.

Moleketi was the preferred choice of PPC shareholders including Prudential Investment Managers and activist investment firm Value Capital Partners, with a holding of 15.18% and 5% in the cement company respectively. Both nominated Moleketi as Nelson’s replacement.

Wholesale changes were also made to the board, with shareholders influencing the appointment of other board members including Luvuyo Mkhondo and Anthony Ball as non-executive directors of PPC.

Mkhondo and Ball have ties to Value Capital Partners, with the former being a director in the company and the latter a co-founder and chairman. It’s not unusual for shareholders to have their own representatives on the board.

Recent corporate events are showing that fund managers are increasingly becoming activist instead of only collecting inflation plus 5% returns for their clients.

Net1 UEPS’s largest shareholders – the International Finance Corporation and Allan Gray, which both hold 17% and 15.6% stake respectively – recently forced the company’s board to fire controversial CEO Serge Belamant and other board members.

Belamant’s sacking was due to questionable practices of Cash Paymaster Services – the Net1 subsidiary that is responsible for distributing more than 10 million social grants – in profiting from its contract with the South African Social Security Agency.

Five board members resigned at construction firm Group Five in 2017 after pressure from its largest shareholder Allan Gray, which disagreed with the future direction of the company.

PPC Shareholders call the board changes “fresh” in helping the company to improve its cement operations, which span from SA to rest of Africa including Rwanda, Democratic Republic of Congo, Ethiopia, and Zimbabwe.

Prudential is satisfied with the board changes but it would still like to see a further strengthening of the PPC board, said Chris Wood, the asset manager’s head of equity. “[This is] with a view to bringing improved oversight to the group, from individuals with relevant industry experience and corporate expertise,” said Wood.

“Prudential does, however, recognises the importance of ensuring some continuity at a board level, particularly as PPC commences the audit process for its current financial year results.”

Prudential anticipates further changes to the board at PPC’s annual general meeting in August 2018.

PPC shareholders recently exerted the same power when they asked management to abandoned merger talks with AfriSam.

AfriSam pulled out all the stops to make the merger work – even joining forces with Canada-based investment holding firm Fairfax Africa Investments. Toronto Stock Exchange-listed Fairfax offered to purchase R2 billion of PPC ordinary shares at R5.75/share.

The merger was doomed from day one, with more than 25% of PPC shareholders rejecting Fairfax’s offer as they believe it significantly undervalues the company’s shares. They ascribed an R8/share to R10/share fair value if a control premium is included.

Shareholders also said PPC’s share price could accelerate to R12/share in the next three-years given the company’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.

PPC’s share price has increased by 31% since merger talks with AfriSam were abandoned in December 2017.

PPC share graph

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Jabu Moleketi: when everyone that has enjoyed the cruise is jumping off the sinking ship – it’s a sign that it cannot be saved not to mention by inexpericed captain. Learn from Ben Magara (Lonmin). When the ship settles at bottom of the ocean the captain in charge is resposible not the one who navigated and steer it prior.

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