Fairfax’s Africa unit is prepared to purchase R2billion in shares priced at R5.75 each, PPC said. The deal is conditional on a successful tie-up with AfriSam, which has been working with the Canadian company on the proposal.
Fairfax, which has its headquarters in Toronto, will invest a further R4bn to pay off AfriSam debt to ensure that the deal goes ahead, PPC said.
The proposed merger ratio is based on 58% PPC and 42% AfriSam. PPC advised its shareholders that it had received two other offers from trade buyers about a pan-African combination and that while it had yet to “fully consider” the Fairfax proposal, the offer of R5.75 “fundamentally undervalues” the cement maker.
PPC shares jumped as much as 8.81% to close at R5.93 on the JSE yesterday, the highest since June 9.
The proposal is the latest attempt at a merger of PPC and AfriSam after more than two-and-a-half years of on-off negotiations. Both companies have been struggling with high debt levels, slower demand and the emergence of new competitors.
Talks previously broke down over how to structure the deal and who would have management control. The Fairfax offer would create a combined company “in a strong financial position”, AfriSam said.
“It is still too early to tell if the Fairfax offer makes sense,” UBS analyst Kwame Antwi said. “The market would need additional information. Most importantly, a value on AfriSam is needed.”
The African unit of Fairfax started a fund of about $500million (R6.47billion) for investments on the continent earlier this year.
Fairfax Africa last week completed the purchase of a 42% stake in Atlas Mara, the company co-founded by former Barclays chief executive Bob Diamond.
The parent company, headed by Prem Watsa, has almost $44bn in assets.
Merger talks between Johannesburg-based PPC and AfriSam were first announced in December 2014, then called off a few months later before being revived in February this year.
The initiation of fresh negotiations came after a turbulent year for PPC, which was forced to raise R4bn in a rights issue after S&P Global Ratings cut its debt to junk, triggering early redemptions by bond holders.
The latest talks broke down after the companies couldn’t agree on how to value the deal, PPC chairperson Peter Nelson said.
Two people familiar with the matter said talks were also under way that might result in the writing down of R3bn of debt by the Public Investment Corporation (PIC), Africa’s largest money manager.
The debt is held in financial instruments known as payment in kind notes, which typically allow a company to pay off interest with additional debt or equity. The cash injection from Fairfax Africa would come days after previous talks about a combination failed and would help ensure that AfriSam does not default on its debt obligations, the people said.
Banks inclg FirstRand’s Rand Merchant Bank and Old Mutual’s Nedbank have already allowed AfriSam extensions on some of their loan repayments.
PIC owns about 60% of AfriSam.