AFRISAM TO EYE OTHER DEALS IF THE TIE-UP WITH PPC FAILS

CityPress - - Business - JUSTIN BROWN justin.brown@city­press.co.za

A merger be­tween ce­ment pro­duc­ers AfriSam and PPC would re­sult in hun­dreds of mil­lions of rands in sav­ings, AfriSam’s act­ing CEO, Rob Wes­sels, told City Press this week.

A tie-up be­tween South Africa’s largest two ce­ment mak­ers would al­low for lo­gis­tics and pro­cure­ment sav­ings, while en­abling the group to ac­cess and de­velop a broader level of skills, he added.

The key ben­e­fit would be an im­proved fi­nan­cial po­si­tion for the con­sol­i­dated com­pany, com­pared with ex­ist­ing fi­nances as two sep­a­rate en­ti­ties.

Wes­sels at­trib­uted the key driv­ers of this pro­posed merger to tough times pre­cip­i­tated by new com­peti­tors – par­tic­u­larly Mamba Ce­ment and Dan­gote’s Sephaku Ce­ment – as well as the cur­rent re­ces­sion, which had hurt prof­its.

An an­a­lyst, who wished to re­main anonymous, said an­other key driver for AfriSam was the need to im­prove its fi­nan­cial po­si­tion be­cause it had a “pile of debt”.

Wes­sels said if the merger did not go ahead, a plan B would prob­a­bly see both com­pa­nies im­prove their fi­nan­cial po­si­tions by em­bark­ing on cap­i­tal-rais­ing projects or look­ing for dif­fer­ent part­ners.

These part­ners that Wes­sels may have been re­fer­ring to, should the tieup with PPC not hap­pen, in­clude play­ers in the lo­cal ce­ment mar­ket such as Sephaku Ce­ment, which is 64% owned by Nige­ria’s Dan­gote; La­farge; Natal Portland Ce­ment, which is part of Brazil’s Ca­margo Cor­rêa con­struc­tion con­glom­er­ate, and Mamba Ce­ment, which counts China’s Ji­dong De­vel­op­ment Group as a ma­jor in­vestor.

The talks about the merger ap­pear to be go­ing bet­ter than the last time the two com­pa­nies discussed the topic dur­ing late 2014 and early 2015.

Ac­cord­ing to an an­a­lyst, Dan­gote was “cash flush” and if a PPC-AfriSam merger failed, Sephaku could make a move in the lo­cal mar­ket.

Build­ing ma­te­ri­als com­pany Afrimat could also en­ter the ce­ment con­sol­i­da­tion fray, added the an­a­lyst.

Wes­sels said two years ago, the merger talks were ter­mi­nated “quite quickly”, but that this time they were on­go­ing.

Merger talks were likely to “get to a point rel­a­tively soon where we can say more”, he added.

The val­u­a­tion of the AfriSam and PPC busi­nesses was one of the key is­sues at the cen­tre of con­sol­i­da­tion talks be­tween the two com­pa­nies, Wes­sels said.

An an­a­lyst said that, based on in­stalled ce­ment pro­duc­tion ca­pac­ity at the two groups, the im­plied merger ra­tio could be 60:40 in PPC’s favour.

This week, AfriSam took the media on a tour of its flag­ship Ulco ce­ment plant, sit­u­ated about 80km from Kim­ber­ley in the North­ern Cape.

Wes­sels said the last time AfriSam was listed on the JSE was in 1998 and added that with the prospect of the merger go­ing ahead, the ce­ment com­pany was reach­ing out to a broader base of media af­ter years of be­ing “media shy”.

“We are in the thick of talks,” he said. Wes­sels pointed to a world­wide trend to­wards con­sol­i­da­tion and merg­ers in the ce­ment sec­tor, and re­ferred to the re­cent merg­ers be­tween Hol­cim and La­farge, and Hei­del­bergCe­ment and Ital­cementi.

Wes­sels de­clined to com­ment on any com­pe­ti­tion is­sues that might arise as a re­sult of an AfriSam-PPC merger, but ac­knowl­edged that this could emerge as a fac­tor if a tie-up was con­cluded and the deal was filed with the com­pe­ti­tion au­thor­i­ties.

An an­a­lyst said that for a merger of AfriSam and PPC to re­ceive reg­u­la­tory ap­proval, it would al­most cer­tainly re­quire the sales of as­sets, given the sig­nif­i­cant po­si­tions the two com­pa­nies held in the lo­cal mar­ket.

A key player in any deal will be the Pub­lic In­vest­ment Cor­po­ra­tion (PIC).

The state-owned as­set man­age­ment com­pany holds a 66% stake in AfriSam and a 15% in­ter­est in PPC.

Deon Botha, the PIC’s head of cor­po­rate af­fairs, said: “The PIC has noted the com­mu­ni­ca­tion from AfriSam re­gard­ing the con­tin­u­a­tion of in­ves­ti­ga­tions into the mer­its of a pos­si­ble merger with PPC.”

Em­pow­er­ment group Pem­bani has a 30.5% in­ter­est in AfriSam and is also likely to be a key player in the talks.

Wes­sels de­clined to com­ment on the fact that the lat­est round of merger talks had seen changes in CEOs at both com­pa­nies.

The talks are ob­vi­ously caus­ing strain as last month, PPC’s CEO, Dar­ryll Cas­tle, re­signed just days af­ter nonex­ec­u­tive di­rec­tor Tito Mboweni left the board.

Jo­han Claassen, the man­ag­ing di­rec­tor of PPC’s lo­cal ce­ment busi­ness, was an­nounced as the com­pany’s act­ing CEO.

In May, AfriSam’s CEO, Stephan Olivier, stepped down af­ter seven years at the helm, with Wes­sels tak­ing over as act­ing CEO.

Wes­sels was un­able to dis­close AfriSam’s fi­nan­cial per­for­mance, but said that, like PPC, the com­pany had seen its mar­gins come un­der pres­sure in South Africa be­cause of in­creased com­pe­ti­tion.

“Both com­pa­nies are feel­ing the squeeze in South Africa,” he said.

This lat­est round of merger talks started in Fe­bru­ary.

AfriSam has the ca­pac­ity to pro­duce

4.5 mil­lion tons of ce­ment a year and em­ploys 2 000 peo­ple.

AfriSam anf PPC’s in­ter­ests in Africa

PPC AfriSam Both An­gola Demo­cratic Repub­lic of the Congo Namibia Zam­bia Botswana Ethiopia Kenya Tan­za­nia Mozam­bique

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