Mid-tier miner Afrimat’s acquisition of cement producer Lafarge South Africa has passed all regulatory hurdles except the Competition Commission, which has moved the deal, with new conditions, to the Competition Tribunal for a decision.
It has become part of doing business in South Africa, among many other challenges such as load shedding, that the red tape of trying to get an acquisition through the Competition Commission and the Competition Tribunal has become an extensive delay in terms of time and money for businesses.
The transaction for Lafarge South Africa was announced on June 20, 2023.
“Afrimat agreed to some asset sales to clear the deal. It is these conditions that have now seen ‘chancers’ come out of the woodwork and have challenged the deal and now the Competition Tribunal is involved to investigate the veracity of these claims. I see them as nothing more than ‘gravy training’ and egregious,” Smalltalkdaily Research independent analyst Anthony Clark said yesterday.
“This has delayed the Lafarge South Africa deal. Now lawyers are involved, which just delays and adds costs to a deal where 800 jobs are involved as well as a large construction company which is now operating without a captain for a somewhat longer period,” said Clark.
The Commission said in turn that it had recommended to the Tribunal that the transaction be approved, but with some conditions already agreed between the parties.
This was because the Commission had initially found that the transaction would result in “horizontal overlaps” in the general aggregates market, and the ready-mix concrete market.
“To restore the lost competition that would otherwise arise from the merger and in order to ensure the merger is justifiable on public interest grounds, the Commission has recommended the Tribunal approve the merger subject to the merging parties divesting of various general aggregates quarries and ready-mix concrete plants across South Africa. The merging parties have agreed,” the Commission said in a statement.
The Commission had also recommended that the merger be approved subject to a moratorium on merger-related retrenchments, and other measures to protect employment, which the parties had also agreed to.
“The (transaction) will become unconditional and be implemented once the Competition Tribunal approval has been obtained,” Afrimat said in an announcement yesterday.
It said the Minister of Mineral Resources and Energy had consented to the acquisition, as had the Financial Surveillance Department of the South African Reserve Bank. The Botswana and eSwatini competition authorities had also approved the transaction.
Financial commentator Simon Brown told “Business Report”: “Afrimat would have liked the deal closed last year, just to get it done, but also to start earning from it.”
“It not consolidation in the local cement sector as Afrimat had none really, but it does boost Afrimat as a big player in the construction materials sector and is good for the company,” he added.
The purchase price for the acquisition was $6 million (R115m), with an additional R900m going to the repayment of an amount owing to the Holcim Group. The effective date of the would be 10 business days after all the conditions precedent were met.
Lafarge entered South Africa in 1998 and offers a range of products to the local construction industry, including aggregates, concrete, cement and fly ash, which can increase the durability of concrete. The acquisition forms part of Afrimat’s goal of growing its local footprint.
Lafarge SA had a net asset value of R1.4 billion at the end of its year to end-December 2022, when its core profit fell to R38m from R311m in 2021.
Lafarge is a producer of cement. Cement is the most significant input in the manufacture of ready-mix concrete. Fly ash is produced by processing combusted thermal coal from Eskom’s coal-fired power stations. Fly ash is used as an input to “extend” the cement required to produce ready-mix concrete.