CAPE TOWN - Negotiations between PPC and AfriSam, two of South Africa’s biggest cement producers, about a potential merger have reached a make-or-break stage.
This follows AfriSam on Friday confirming that it had cancelled the heads of terms it had entered into with PPC about investigating a possible merger between the two companies.
Despite the cancellation of the heads of terms, AfriSam acting chief executive Rob Wessels said the company remained committed to pursuing a transaction and intended submitting a new proposal regarding a possible merger to PPC.
“AfriSam remains firm that a transaction between AfriSam and PPC will greatly benefit the stakeholders of both companies. For this reason, we continue discussions with PPC and will explore other alternatives available to us.
“It remains our belief that a transaction between the two companies offers the local cement industry an opportunity to develop a local cement champion with the required scale, operational efficiency and balance sheet to enable further investment opportunities in South Africa and the rest of the continent,” he said.
However, PPC chairperson Peter Nelson said they had been involved in the negotiations for six months and there came a time when it was necessary to halt them. Nelson added that the negotiations would only continue beyond this Friday if the new proposal tabled by AfriSam was “of sufficient interest and attraction and fair to shareholders and warranted extending” the negotiations.
He said if PPC did not receive a new proposal from AfriSam, or the proposal it received was not what they were expecting, PPC might terminate the merger discussions at the close of business on Friday.
“We can’t carry on forever. A lot of shareholders are so frightened about the prospect, but I say to them wait until you see all the details and the picture and apply your mind to it,” he said.
Nelson said the while PPC and AfriSam were in agreement with the head of terms in February, it was always “quite a big ask that it would land the companies perfectly in the right spot when it came to valuations”.
“Over and above the like-for-like businesses, we (PPC) have these African investments and ventures and to complicate issues, the PPC share price has declined quite a bit since that date, although in the last couple of weeks it has come back quite nicely. “AfriSam have a different offer that they want to put on the table and talk to PPC about and they don’t want to be limited by the heads of terms that was entered into in February,” he said.
PPC and AfriSam, jointly announced in February that they had entered into formal discussion to assess the merits of a potential merger.
AfriSam, which was previously known as Holcim South Africa and was taken over by the Government Employees Pension Fund in December 2011, made a conditional, non-binding proposal to PPC in December 2014 about a merger, but PPC rejected that proposal a few months later.
Nelson said although PPC agreed to give AfriSam another week to table a new proposal, the message it was getting from all its shareholders was that they were worn out by the proposed deal.
Nelson said there were definitely advantages in combining the businesses but this also came with some disadvantages. He added that PPC would not have gone down this path if it did not believe it could overcome any potential objections to a merger by the Competition Commission.
Shares in PPC dropped 7.59% on the JSE on Friday to close at R4.87.