The share price of century-old cement producer PPC jumped a further 8.81% on Monday to R5.93, bringing the total increase since August 15 to more than 71%.
The latest rally follows an announcement on Sens at 14:15 that Fairfax Africa Investments is offering R2 billion for a stake in PPC at a share price of R5.75, on condition that the PPC merger with competitor AfriSam goes ahead.
When the news broke, the share price stood at R5.43.
The PPC board further announced it received “indicative proposals from two other trade bidders, each in respect of potential pan-African combination with PPC”.
The latest AfriSam offer is the third made to PPC. AfriSam was established in a controversial transaction in 2006 when the Swiss Holcim Group sold its stake to an empowerment consortium despite questions about the funding of the deal.
A few years down the line AfriSam was in a debt crisis. The Public Investment Corporation, which manages the funds of the Government Employees Pension Fund (GEPF) took control of the company and still sits with a 60% stake.
Little has so far been disclosed about AfriSam’s debt position.
The PPC board said in its announcement on Monday that it has constituted an independent board on all three proposed transactions.
According to the announcement the buyer in the proposed Fairfax transaction is Fairfax Africa, listed on the Toronto Stock Exchange. The company has a market capitalisation of $600 million and has $400 million available for investments and is a subsidiary of Fairfax Financial Holdings, which is separately listed on the same exchange and is engaged in property and casualty insurance and reinsurance and investment management.
The Fairfax offer is conditional upon PPC shareholders approving a merger between the two groups and both groups passing the necessary resolutions to give effect to the merger by December 31.
The merger would entail the acquisition by PPC of all the issued shares in AfriSam in exchange for an issue of PPC ordinary shares to the shareholders of AfriSam at a ratio of 58 PPC shares:42 AfriSam shares.
The ratio is calculated on a PPC share price of R5.75 and the equity value of AfriSam being R7.55 billion with net debt not exceeding R866 million.
Fairfax and other investors will recapitalise AfriSam to the tune of R4 billion and take an equity stake.
The transaction is further dependent on regulatory approval by among others, the competition authorities and the Reserve Bank.
The indicative proposals from the other two bidders are at this stage confidential, the PPC board said. It however added: “The independent board is of the view that each of the indicative proposals is sufficiently credible and potentially value enhancing to shareholders to merit careful consideration and further engagement with the respective bidders.”
The board states that the independent board will engage with all the bidders and determine the best course of action for PPC shareholders. As part of its engagement with Fairfax it will determine among other things “whether the partial offer is required to be conditional on shareholder approval”.
The board states that while it is still to fully consider the Fairfax partial offer and the opinion of the independent expert that will advise shareholders, it is of the preliminary opinion that PPC shares are undervalued at R5.75. The board says “when considered in conjunction with the proposed exchange ratio, (it) does not constitute sufficient compensation for PPC’s shareholders. This is particularly so given the partial nature of the offer and the effective control that would vest in the Fairfax Consortium.”
The board advised shareholders to exercise caution when dealing in PPC shares until a further announcement is made.
Sources with knowledge of the cement market have told Moneyweb that the two new suitors could be Dangote and HeidelbergCement/Scancem.
Dangote is the leading cement producer in Africa with operations in ten countries and recorded revenue of $1.9 billion in 2016, according to its website. It owns the controlling stake in local producer Sephaku cement. The sources, who spoke on condition of anonymity, said since Sephaku is smaller than AfriSam, a merger with PPC might find less resistance from the competition authorities than and AfriSam/PPC merger.
Heidelberg/Scancem operates in nine sub-Saharan countries where it produced 6.4 million tons of cement in 2015. It is part of the global HeidelbergCement group that operates in 60 countries and is one of the world’s largest manufacturers of building materials, according to its website.
Heidelberg does not currently have significant cement operations in South Africa.
Oops! We could not locate your form.