- An offer from LafargeHolcim could raise significant competition issues
The stage is set for a bidding war for SA’s largest cement producer PPC, which has received a nonbinding expression of interest from global cement group LafargeHolcim to add to the Afrisam-Fairfax Africa partial offer for PPC’s assets.
An offer from LafargeHolcim, which already has a strong presence in SA and the rest of Africa, could raise significant competition issues as a merger would give the combined company almost half of SA’s cement market. However, the shape of a potential deal is far from clear at this stage, with Swiss-based LafargeHolcim announcing on Friday that it would submit a firm intention offer only in the week of November 20, following a due diligence of PPC.
It contemplated a combination of certain African assets, a partial cash offer and a special dividend, it said on Friday.
LafargeHolcim came into being in 2015 after the $50bn merger of two of the world’s major cement groups, France’s Lafarge and Switzerland’s Holcim. It employs about 90,000 people in more than 80 countries, with cement manufacturing capacity of about 368-million tonnes a year. Its expression of interest is the latest in what PPC says is a series of credible indicative proposals in relation to a potential pan-African combination with the SA’s largest cement group.
PPC said its independent board was still processing a partial offer by Canada’s Fairfax Africa Investments, made jointly with unlisted South African cement group AfriSam and announced in early September 2017. The independent board has now also engaged with LafargeHolcim.
"Further details on the nature of the proposed combination will only be made available if LafargeHolcim makes a firm intention offer. PPC remains committed to avoiding protracted and costly processes and aims to revert to shareholders within sensible time periods," PPC said on Friday.
Electus Fund Managers equity analyst Mish-al Emeran said the announcement was short of details and it was unclear whether LafargeHolcim was interested in PPC’s entire business, its South African assets, or only its rest-of-Africa assets. These alternatives would create different value propositions.
"Yes, I think there will be competition issues, as PPC currently has about 30% market share in SA, LafargeHolcim about 15%. A combined entity would have close to 50%, so would create competition issues," Emeran said. A bid for the rest-of-Africa assets could be interesting as the PPC share price reflected minimal value for the African operations, he said.
PPC has 11 cement factories in SA, Botswana, the Democratic Republic of Congo, Ethiopia, Rwanda and Zimbabwe. Capacity is about 11.5-million tonnes of cement products each year. The group has mostly completed a large capital expenditure programme, with newly commissioned operations in the rest of Africa set to contribute nearly 50% of group profit within two or three years.
The battle for PPC started earlier in October when Prudential Investment Managers, which has now raised its stake in PPC to 15.18%, said the AfriSam-Fairfax conditional partial offer undervalued the group. The Public Investment Corporation holds about 66% of AfriSam and has recently upped its stake in PPC to about 21%. It is said to back the AfriSam-Fairfax offer, though little is clear about the outcome. However, PPC said earlier that at least 25% of shareholders opposed any tie-up.
Fairfax’s offer to buy R2bn of PPC ordinary shares at R5.75 a share is much lower than valuations made by shareholders that range from R8 to R10.