Cement merger not yet set

PPC investors are in a state of suspense, waiting for Afrisam to make a third attempt in as many years to merge the companies

The share price of cement maker PPC halved in value in the six months the company was the subject of a merger proposal with smaller rival Afrisam.

Though it bounced back to more than 500c this week, the stock is still 23% below its level on February 14, the day it announced the latest merger talks with Afrisam. Crucially, PPC shares are now worth just one-sixth of their R36 high of August 2013.

Investors in SA’S largest cement producer are now in a state of suspense, waiting for Afrisam to make a third attempt in as many years to merge the debt-laden companies.

“We will soon meet and exceed that expectation,” says an influential source at Afrisam, who could not be named due to the sensitivity of the talks.

The previous two attempts initiated by the smaller operator — in December 2014 and February — were called off after a few months.

Afrisam needs the merger more than PPC does. The company produces just 4.1 Mt/year of cement in SA and Lesotho, where the 200,000 Mt/year Maseru plant is the firm’s newest.

Another 1.2 Mt comes from Tanga Cement, a 62.5%owned subsidiary in Tanzania.

In the past five years Afrisam has spent billions to bring its ageing Roodepoort and Dudfield plants in line with the latest environmental requirements. That further saddled the company, which is majority owned by the Public Investment Corp (PIC), with about R8bn of debt.

The PIC became the majority shareholder of Afrisam in 2012, when it converted about R23bn of debt to raise its stake from 20% to more than 94%. At the same time Phembani Group, headed by Phuthuma Nhleko, acquired the R3bn debt owed to the foreign funders who had — with the PIC — financed the 2006 buyout of Holcim Cement by BEE partners, who had renamed it Afrisam.