The proposed merger between cement producers AfriSam and PPC should be thoroughly scrutinised to determine its value for PPC shareholders, says Charl Kocks, principal of Ratings Afrika.
He says there are currently more questions than answers about the proposed merger and the role of the Public Investment Corporation (PIC) in it.
The PIC, which manages the investments of the Government Employees Pension Fund (GEPF), said in a statement after the merger announcement that it held 12.57% of PPC and 66% of AfriSam.
The PIC pronounced its support of the current PPC board almost immediately when the latter’s recent battle started with former CEO Ketso Gordhan. This position in effect prevented the ousting of the board and Gordhan’s return to the position he resigned from in September, following his clash with the board.
The PIC’s involvement in AfriSam also has a long and troubled history. The asset manager invested R6 billion in AfriSam in 2008 following the conclusion of the controversial and politically-charged empowerment deal that saw international cement producer Holcim selling the majority stake in the company to an empowerment partner in 2007.
The empowerment deal collapsed in 2011 and the PIC had to step in to save AfriSam. It restructured the cement producer’s debt and invested a further R3.3 billion in the company, thereby saddling itself with almost all the share capital.
The PIC stake has since been managed down to 66%, which still gives it high exposure to one company and places it in control. Former PIC CEO Elias Masilela said at the time, “It is not our role to manage a cement manufacturing plant”.
Kocks says the PIC should be transparent about its role on both boards; about precisely when the PPC board got knowledge of the possible merger; plus whether any commitments have been made by the current board. The board is expected to look quite different after the annual general meeting at the end of the month as a result of a “settlement” with minority shareholders supporting Gordhan.
Kocks also asks about a possible connection between the PIC’s “surprisingly quick positioning” in the battle with Gordhan and the proposed merger.
“It will be much more credible if a new, different board considers the AfriSam proposal,” he says.
Looking from outside there is no clear strategic reason for PPC shareholders to support the merger, Kocks says. AfriSam’s current debt position is unclear and it does not make sense for PPC to become an even bigger player in the stagnant South African market by merging with one of its biggest competitors, he says.
He urges PPC shareholders to study the proposal very carefully to ensure they do not burn their fingers on AfriSam as the PIC has.
Very little can be gathered from the December SENS announcement. The PPC board merely advised its shareholders that it had received a conditional, non-binding merger proposal from AfriSam which was being considered. It further stated that the proposal, if implemented, might have a material impact on the PPC share price and advised shareholders to exercise caution when dealing in the shares until a further announcement was made.
No timelines have been announced.
Moneyweb has requested an interview with the CEO of the PIC, but he is not currently available.