CAN NHLEKO CEMENT THIS?
Phuthuma Nhleko has in the past proven himself an agile deal-maker with a solid grounding. If he can cement the proposed merger of Afrisam — which he chairs — with the larger PPC, he will have laid yet another concrete foundation on which generations of Africans can build.
This time, however, the going may be harder. His proposed bride, PPC, has made herself more attractive to other suitors. The board of PPC says it is reviewing two other credible proposals for the company, which has recently commissioned modern cement production facilities in some of the key markets in Africa: Zimbabwe, the DRC, Rwanda and Ethiopia. These new plants are PPC’S main attraction.
In the past, Nhleko’s financial engineering skill and solid tactical manoeuvring ability made him succeed in the face of significant obstacles, and he has already demonstrated some of that strategic nous in bringing Fairfax Africa Investments to join in the bid for the combination of SA’S largest cement producers.
Listed on the Toronto stock exchange, Fairfax joins an already financially strong team behind Afrisam: the PIC owns 66% of the company while Nhleko’s Phembani Group holds 30.5%. The remaining Afrisam stock is held by BEE investor Bunker Hills Investment — which saddled Afrisam with debt in its 2006 buyout of Holcim Cement and minority partner Aveng — as well as Holcim itself. Fairfax Africa has already produced a R2bn cheque to buy stock in PPC and another R4bn to settle Afrisam’s external debt. That leaves R3bn of Afrisam debt owed to its major shareholders.
The Phembani/pic/fairfax consortium hopes the conversion of that debt will complete the would-be groom’s makeover, enabling it to walk down the aisle without any debt baggage while leaving the other two suitors enviously watching from the sidelines.
Even with the huge financial backing of all Afrisam’s major investors, the emergence of the two unidentified “trade bidders” may serve to prolong the consortium’s courtship, however.
That the price of PPC has already surpassed the 575c/share offered by Fairfax Africa shows there’s more bargaining ahead. Even though there’s already a light flickering at the end of the tunnel, long-suffering PPC investors will need further persuasion to sell their stock. That could mean about 30c-35c/share more to secure their hand in the march further into Africa, where they will face off with some of the “trade bidders” in providing the commodity for infrastructure.
It was the plan all along
A dreamer and long-term investor, Nhleko had this plan all along. When Afrisam was collapsing under the weight of debt and poor demand in 2012, Phembani pounced and offered to acquire the company from the inexperienced Bunker Hills team. The stock was worth next to nothing, and Bunker Hills refused to walk away, kicking up a political storm about “rich blacks who are intent on bullying us out of our hardearned investment”. But the overseas bondholders who had financed the buyout deal in 2006 were anxious, as a default on their debt was imminent. Phembani was happy to relieve them of this debt for a fraction of its face value, and so squeezed Bunker Hills out.
Afrisam acting CEO Rob Wessels led the Phembani team alongside Nhleko then. When the proposed merger is complete, the duo will be in pole position to execute the combined entity’s assault on the continent.
Once the cement deal sets, Phembani should next consolidate its energy assets.
It owns 20% of petroleum group Engen, which has operations in eight countries on the continent, as well as a significant stake in oil explorer Sacoil. Expect some consolidation there too.
Once the cement deal sets, Phembani should focus on energy