Vulnerable PPC attracts opportunistic merger offer from rival Afrisam

In business, the best time to pounce is when your competitor is under the most pressure. And right now, SA cement producer PPC is in disarray – its highly rated CEO Ketso Gordhan left anything but quietly, the directorate has been shaken up by disgruntled shareholders and the share price is at its lowest point in three years. Enter rival Afrisam with an unsolicited "merger" offer. Afrisam, the old Anglo Alpha cement group which was founded in 1934, is majority black owned and run by cement industry veteran Dr Stephan Olivier. It employs 3 000 and is further advanced than PPC in its African expansion with a subsidiary in Tanzania. The deal looks to be highly opportunistic for Afrisam – but whether PPC shareholders would agree to sell out at this depressed price is another question. And there's also the question of approval by the Competition Commission. PPC has certainly experienced an interesting year. – AH  

By Chris Spillane

Dec. 10 (Bloomberg) — PPC Ltd., South Africa's biggest cement maker, received an offer from competitor AfriSam Group Pty Ltd. about a merger that would create a dominant player in Africa's second biggest economy.

PPC has been embroiled in a boardroom battle since former Chief Executive Officer Ketso Gordhan resigned in September. The shares declined 26 percent between Sept. 19, the day before Gordhan's resignation was announced, and yesterday's close. The board is considering the proposal, Johannesburg-based PPC said in a statement today.

"It just seems opportune for AfriSam, striking while the iron is hot," Sasha Naryshkine, a money manager at Vestact, said by phone. "PPC's also been having public problems of their own and maybe that's depressed their valuation."

PPC shares gained as much as 6.5 percent, the most on an intraday basis since March 2009, and traded 4.4 percent higher at 25.05 rand as of 3:47 p.m. in Johannesburg. That values the company at about 15.2 billion rand ($1.3 billion)

PPC is expanding in African countries where demand for cement outweighs supply to offset slowing growth in its domestic market. Closely held AfriSam, South Africa's second biggest cement maker, said last year it's also developing projects elsewhere on the continent and has operations in Tanzania, Lesotho and Botswana.

Competition Concerns

The potential deal may be rejected by competition authorities on the basis that it would create a South African cement company with a dominant market position, Gordhan said by phone. The proposal may be attractive to PPC as combining operations could lead to cost savings, he said. Mava Scott, A spokesman for South Africa's Competition Commission, didn't immediately respond to a request for comment.

"The market share of PPC plus AfriSam would be pretty close to 60 percent," Gordhan said. The ex-CEO has 1.4 million shares in PPC, worth about 35 million rand.

"This deal would help the combined group to close one or two less efficient plants and focus on overlaps," Wayne McCurrie, a money manager at Johannesburg-based Momentum Asset Management, said by phone. "There is excess cement capacity in South Africa and consolidation in an industry with excess capacity is not unusual."

PPC sales gained 9 percent to 9 billion rand in the year through September, while profit declined 9 percent to 849 million rand. AfriSam's website doesn't contain financial information and a spokeswoman for the company didn't return a phone call seeking comment.

Gordhan resigned after his attempt to fire Chief Financial Officer Tryphosa Ramano was blocked by fellow directors. Shareholders led by Foord Asset Management then called for an investor meeting to vote on the replacement of the board. PPC said last week it agreed to elect some new non-executives next month. The company is in the process of hiring a new CEO. – BLOOMBERG