AfriSam to eye other deals if tie-up with PPC fails | Fin24

AfriSam to eye other deals if tie-up with PPC fails

Aug 06 2017 06:58
Justin Brown

Johannesburg - A merger between cement producers AfriSam and PPC would result in hundreds of millions of rands in savings, AfriSam’s acting CEO, Rob Wessels, told City Press this week.

A tie-up between South Africa’s largest two cement makers would allow for logistics and procurement savings, while enabling the group to access and develop a broader level of skills, he added.

The key benefit would be an improved financial position for the consolidated company, compared with existing finances as two separate entities.

Wessels attributed the key drivers of this proposed merger to tough times precipitated by new competitors – particularly Mamba Cement and Dangote’s Sephaku Cement – as well as the current recession, which had hurt profits.

An analyst, who wished to remain anonymous, said another key driver for AfriSam was the need to improve its financial position because it had a “pile of debt”.

Wessels said if the merger did not go ahead, a plan B would probably see both companies improve their financial positions by embarking on capital-raising projects or looking for different partners.

These partners that Wessels may have been referring to, should the tie-up with PPC not happen, include players in the local cement market such as Sephaku Cement, which is 64% owned by Nigeria’s Dangote; Lafarge; Natal Portland Cement, which is part of Brazil’s Camargo Corrêa construction conglomerate, and Mamba Cement, which counts China’s Jidong Development Group as a major investor.

The talks about the merger appear to be going better than the last time the two companies discussed the topic during late 2014 and early 2015.

According to an analyst, Dangote was “cash flush” and if a PPC-AfriSam merger failed, Sephaku could make a move in the local market.

Building materials company Afrimat could also enter the cement consolidation fray, added the analyst.

Wessels said two years ago, the merger talks were terminated “quite quickly”, but that this time they were ongoing.

Merger talks were likely to “get to a point relatively soon where we can say more”, he added.

The valuation of the AfriSam and PPC businesses was one of the key issues at the centre of consolidation talks between the two companies, Wessels said.

An analyst said that, based on installed cement production capacity at the two groups, the implied merger ratio could be 60:40 in PPC’s favour.

This week, AfriSam took the media on a tour of its flagship Ulco cement plant, situated about 80km from Kimberley in the Northern Cape.

Wessels said the last time AfriSam was listed on the JSE was in 1998 and added that with the prospect of the merger going ahead, the cement company was reaching out to a broader base of media after years of being “media shy”.

“We are in the thick of talks,” he said.

Wessels pointed to a worldwide trend towards consolidation and mergers in the cement sector, and referred to the recent mergers between Holcim and Lafarge, and HeidelbergCement and Italcementi.

Wessels declined to comment on any competition issues that might arise as a result of an AfriSam-PPC merger, but acknowledged that this could emerge as a factor if a tie-up was concluded and the deal was filed with the competition authorities.

An analyst said that for a merger of AfriSam and PPC to receive regulatory approval, it would almost certainly require the sales of assets, given the significant positions the two companies held in the local market.

A key player in any deal will be the Public Investment Corporation (PIC).

The state-owned asset management company holds a 66% stake in AfriSam and a 15% interest in PPC.

Deon Botha, the PIC’s head of corporate affairs, said: “The PIC has noted the communication from AfriSam regarding the continuation of investigations into the merits of a possible merger with PPC.”

Empowerment group Pembani has a 30.5% interest in AfriSam and is also likely to be a key player in the talks.

Wessels declined to comment on the fact that the latest round of merger talks had seen changes in CEOs at both companies.

The talks are obviously causing strain as last month, PPC’s CEO, Darryll Castle, resigned just days after nonexecutive director Tito Mboweni left the board.

Johan Claassen, the managing director of PPC’s local cement business, was announced as the company’s acting CEO.

In May, AfriSam’s CEO, Stephan Olivier, stepped down after seven years at the helm, with Wessels taking over as acting CEO.

Wessels was unable to disclose AfriSam’s financial performance, but said that, like PPC, the company had seen its margins come under pressure in South Africa because of increased competition.

“Both companies are feeling the squeeze in South Africa,” he said.

This latest round of merger talks started in February.

AfriSam has the capacity to produce 4.5 million tons of cement a year and employs 2 000 people.

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