Why merger faces shareholder rebellion
OPPOSITION: PRUDENTIAL INVESTMENT MANAGERS, VALUE CAPITAL PARTNERS AND VISIO CAPITAL MANAGEMENT
PPC shareholders dig in their heels, arguing the cement group is better as a standalone business.
share price over the next threeyears. “We see the potential for PPC ordinary shares to be worth in excess of R12/share within the next three-years.”
Value Capital Partners, which owns 5% of PPC, has put an intrinsic value of at least R10 to PPC shares based on its balance sheet after its right issues and presence across Africa. Value CEO Sam Sithole said PPC will generate nearly 50% of its profits from the rest of Africa in the next two to three years.
AfriSam needs PPC
Prudential believes the merger would benefit AfriSam more than PPC. “AfriSam needs to be recapitalised and the shareholders of AfriSam appear unwilling to inject further capital,” said Wood.
AfriSam received bailouts from several shareholders in 2012 after facing a R15 billion debt load. PPC shareholders have been in the dark about AfriSam’s debt and cash generation position since the merger was first touted in February.
Visio Capital Management, with a 7% PPC stake, said a successful merger would distract PPC’s management from boosting operational efficiencies. It’s also concerned about the hurdles the merger could face in getting competition authority approval.
Rejecting share purchase offer
A bidding ensued, with Fairfax and Dangote Cement offering to tie-up with PPC to cement the AfriSam deal.
On Friday, Dangote walked away from a potential PPC takeover, leaving Fairfax as the sole known bidder. Fairfax has backed PPC in its bid for AfriSam, offering to acquire PPC shares worth R2 billion for R5.75/share if shareholders back the merger.
However, this won’t likely pass muster with shareholders.
Three shareholders holding over 25% of PPC have opposed the merger; it requires 75% of shareholder support to be successful.
Shareholders have also taken umbrage with Fairfax’s R5.75/ share, based on PPC’s Ebitda of R2 billion for the year to March 2017.
Sithole said Fairfax’s offer materially undervalues the company given its cash-generation potential. “At an offer price of R5.75/ share, we would be buyers, not sellers of the company, as the business is worth almost double that.”
Said Wood: “Fairfax are offering PPC shareholders the opportunity to bank a short-term gain but risk transferring significant value to the consortium comprising Fairfax, PIC and Phembani, who will end up controlling 55% of the combined entity.”