PIC increases stake in PPC
• Increase in stake gives fund manager negative control and puts shareholders in a stalemate over AfriSam tie-up
The Public Investment Corporation (PIC) has increased its stake in PPC to just more than 25%, which means it now has negative control over the country’s largest cement producer and a controlling 66% of the second-largest Afrisam. Negative control means the PIC can block any significant transactions by the PPC board. Such transactions usually require support from 75% of shareholders.
The Public Investment Corporation (PIC) has increased its stake in PPC to just more than 25%, which means it now has negative control over the country’s largest cement producer and a controlling 66% of the secondlargest Afrisam.
Negative control means the PIC can block any significant transactions the PPC board wants to do. Such transactions usually require support from 75% of shareholders.
This means an effective stalemate situation has arisen as more than 25% of PPC shareholders have indicated they will oppose a tie-up with AfriSam and the PIC is now likely to oppose any transaction that does not involve AfriSam.
Chris Wood, head of equity at Prudential Investment Managers, which holds 14% of PPC and opposes the AfriSam deal, said a stalemate suited Prudential as it gave PPC an opportunity to realise some of its standalone potential.
Wood said PPC had made significant investment in SA and the rest of Africa, which had the potential to double the company’s earnings and share price over the next three years. But the company “has its own set of challenges” and needed time to bed down these investments.
In early October, PPC’s independent board, established to consider transactions, said it was keen to avoid long-running negotiations with any bidders. The board was “mindful of avoiding any unduly protracted engagement with any of the bidders and accordingly, aims to be in a position to make a decision on the best way to proceed within a sensible … period”.
Sam Sithole, CEO of Value Capital Partners, which owns 5% of PPC and also opposes the AfriSam tie-up, said that he was happy with the PIC as a co-investor in PPC and welcomed news of its increased holding. “But from our perspective, we see the PPC doing better on its own,” he said.
Value Capital has attributed an intrinsic value of at least R10 per share to PPC. Sithole has said he believes PPC will generate almost 50% of its profits from the rest of Africa in the next two years.
Following Friday morning’s Sens announcement from PPC, revealing the PIC had increased its stake to 25.058%, the share price eased back to close marginally weaker at R7.48.
The PIC recently released a schedule of its unlisted investments, which revealed its 66% AfriSam stake had cost R9.5bn. That R9.5bn had a market value at the end of March 2017 of just R1.8bn. In addition, the PIC has R1.8bn of AfriSam debt. It described AfriSam as underperforming financially and said there was significant competition in all the markets in which Afrisam operated.
A competition lawyer said the 25.058% stake in PPC, in addition to the AfriSam holding, would not raise any competition concerns unless it represented more than 50% of shareholders who generally attended shareholder meetings. Since 2015, shareholder attendance at PPC meetings has varied between 67% and 80%.