Cement producers PPC and AfriSam are mulling approaching the Competition Commission for an indication of the likelihood of the proposed merger being approved.
After getting an indication from competition authorities, the two parties will explore in detail the possibility of concluding a transaction.
PPC yesterday issued a further cautionary announcement about the proposed merger with AfriSam. This news did nothing to support PPC’s share price, which fell as much as 3.5 percent to R21.42, which was the stock’s lowest since at least 1995, before closing down 1.4 percent at R21.89.
Bheki Sibiya, PPC’s chairman, confirmed that the process that the listed cement and lime producer would follow in considering the indicative merger proposal by AfriSam would probably involve two or three phases.
Sibiya, who was reappointed PPC’s chairman yesterday, told Business Report after the company’s general meeting that PPC was busy with the first phase now, which involved its executives looking at the business case for the possible merger.
Once they had made up their mind, the executives would make a recommendation to PPC’s board and the board in turn would consider this recommendation. “Once the board has applied its mind and there is a business case (for the proposed merger), that’s when we probably need to jointly with AfriSam approach the Competition Commission and explore whether there is any initial indication and then take it from there,” he said.
Sibiya stressed PPC would only appoint consultants to determine the valuation of the two companies and get an opinion on a fair and reasonable offer once it had approached the Competition Commission to avoid incurring any unnecessary costs.
The Public Investment Corporation holds 12.57 percent of PPC and 66 percent of AfriSam.
Former PPC chief executive Ketso Gordhan said last month that the proposed merger could be approved by the competition authorities if assets were sold.
Gordhan said at the right relative valuation the proposed merger could be a good deal for PPC, but the challenge would be to get approval from the competition authorities because the combined market share of the merged companies would be about 50 percent.
He said the merger was possible if AfriSam sold parts of its business separately and suspected AfriSam’s Mafikeng plant would have to be sold to reduce the combined market share of the merged business to below 40 percent.
Gordhan, who owns 1.4 million PPC shares to make him one of the largest individual shareholders in the company, said he would support the merger subject to the relative valuation of the companies.
PPC’s market capitalisation was R20 billion when Gordhan resigned as chief executive of PPC in September, but had slumped to R14.5bn when the proposed merger was announced.
The company’s market capitalisation slumped to R13.37bn on Monday after PPC reported that its headline earnings a share for the six months to March were expected to be between 25 percent and 45 percent lower than in the previous corresponding period.
Sibiya told Business Report on Monday that PPC’s shares were trading at a significant price discount, but PPC’s board did not manage the company’s share price, which was based on sentiment.
He said PPC had to ensure its fundamentals were good, “keep the home fires burning” whereby the company defended and grew its domestic market share, profitability and sustainability but also grew into the rest of Africa.