Moguls mix it in cement contest
Purses open as SA’s Nhleko and Nigeria’s Dangote square up for cement giant PPC
Step aside Conor McGregor and Floyd Mayweather — two of Africa’s richest men are squaring up for a mighty showdown involving billions of rands.
At stake is not a golden belt, but cement. Enough to supply most of Africa.
South African businessman Phuthuma Nhleko threw the first punch this week, producing a R6-billion cheque in a R5.75a-share “firm offer” to acquire stock in cement giant PPC.
Nigerian billionaire Aliko Dangote hit back with an “indicative offer closer to the current market price of the share”. That was close to R6.35 a share on Friday, valuing the company at R10.1-billion.
The face-off has PPC shareholders laughing all the way to the JSE.
Two of Africa’s richest men are finally going toe-to-toe. They have been circling each other for quite a while but now an intense corporate scrap seems inevitable.
Aliko Dangote and Phuthuma Nhleko are squaring up for a bidding war over PPC, South Africa’s biggest cement producer. This time the Nigeria-South Africa power play will be more profitable than the political rivalry of the Goodluck Jonathan-Jacob Zuma years.
PPC’s investors are already smiling all the way to the JSE, with the share price having risen 84% from its most recent low three weeks ago. It could get better still in the next few weeks as the billionaires sharpen their tools and dig deeper in their pockets in order to win the favour of the PPC shareholders.
Nhleko’s consortium this week fired the first shot, producing a R6-billion cheque in a R5.75 a share “firm offer” to acquire stock in PPC and to settle the debt owed by its smaller domestic rival, Afrisam.
Nhleko’s Phambani Group owns 30.5% of Afrisam and has management control through an agreement with the Public Investment Corporation (PIC), which owns 66% of the company. The companies would combine their operations if Nhleko has his way. It is pursuing the PPC merger in concert with Canadian investor Fairfax Africa Investments.
While evidently not enough, the Afrisam/ Fairfax offer is a big improvement on the R4.60 a share offer Afrisam made in late August before it abandoned the talks. It then brought Fairfax in to recapitalise itself to wipe out its crippling R7-billion debt.
If their bid succeeds, they would take the cement war to Dangote across the continent, with their current operations stretching from Dar es Salaam in Tanzania across the centre of Africa to Kinshasa on the Atlantic Ocean. The combined group would have revenue estimated at R16-billion. The deal would also reduce the net debt of the merged group to under R6-billion.
Business Times can today disclose that through Dangote Cement, the Nigerian billionaire has submitted an “indicative offer” that would combine PPC’s operations with those of Dangote, currently the continent’s largest producer of cement.
A source close to PPC would only say the indicative price offered by Dangote was “closer to the current market price of the share”. That was just more than R6 a share on Thursday, but the stock jumped to close at R6.35 a share on Friday, valuing the company at R10.1-billion.
Dangote is offering a share swap to merge the two companies and list them on the JSE and the Nigerian Stock Exchange. The detail of the proposed merger is still being worked on.
If Dangote wins, PPC investors will be exposed to a company listed on at least two of Africa’s biggest stock exchanges and supply the commodity in markets stretching from the Atlantic to the Indian oceans while also dominating all the markets stretching from the Sahara down to the lowest tip of the continent.
Dangote operates in 10 African countries, including through a 64% share in South Africa’s Sephaku Cement, while PPC is present in nine. The operations overlap in only two countries — South Africa and Ethiopia. Indeed, it is PPC’s modern technology plants, some new plants under construction, which grew capacity 33%, that have made the Johannesburg-based company even more attractive in the past three years.
LafargeHolcim, one of the globe’s largest cement producers with annual capacity in excess of 353 million tons, has also joined the bidding war through an “indicative offer” for PPC script, says a source.
Third time lucky
But it is Nhleko and Dangote who will fight to the end. They have both tried to merge or take over PPC on numerous occasions. Nhleko hopes this will be third time lucky.
Afrisam first made its intentions known in a late 2014 bid that was later abandoned in 2015, with both firms suffering crippling debt and depressed demand for their products. PPC had got itself into a financial crisis as it was in the middle of the construction of four plants in as many countries. It had to call on investors for a R4-billion rights issue while also having to obtain an emergency loan to keep going.
Dangote’s indicative offer is its fourth attempt to merge with PPC in the past 15 years. The last two attempts were in 2015 and 2012, and were both abandoned before either company’s shareholders could consider them as tough economic conditions in both countries rendered any profitable merger of the debt-laden companies impossible.
The independent PPC board will consider the Fairfax/Afrisam bid while simultaneously conducting talks with both Dangote and LafargeHolcim before giving its recommendation to investors in early October.
The Public Investment Corporation will play a key role in any transaction. It needs the consolidation of Africa’s cement producers as much as Afrisam needs the merger with PPC. The PIC’s 66% stake in struggling Afrisam is its single biggest exposure, but the manager of the pensions of state employees is also the largest investor in PPC with 15% of the shares. It also owns 2% of Nigeria’s Dangote, which has R11-billion of debt against revenue of R14.7-billion.
Asked how it would proceed, the PIC’s Deon Botha said it would only be in a position to express a view after PPC approaches all shareholders with a proposal. Other investors are also waiting for the PPC board to present them with a deal to consider.
Through the R4-billion Fairfax investment, Afrisam will retire all its external debt while a conversion of further debt owed to its current shareholders will make the entity debt-free. Nhleko’s consortium hopes this, together with a R2-billion acquisition of PPC stock, would be enough to convince PPC shareholders to proceed with a merger of South Africa’s largest cement makers.
Phuthuma Nhleko and Aliko Dangote
Aliko Dangote, billionaire and CEO of Dangote Group, looks to rival South Africa’s Phuthuma Nhleko for PPC.