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AfriSam made a nonbinding, conditional proposal to PPC on 10 December 2014 to merge the two cement powerhouses. The two companies have since been locked in “extensive” discussions.
“Over the past few months, we applied our minds extensively to the proposed merger with AfriSam. Ultimately, we decided not to proceed with the proposed deal,” says Castle.
While Castle could not shed more light into the reasons behind the decision, analysts believe that a merger between the largest (PPC) and second-largest (AfriSam) cement producers would have created an entity with just under 60% of the South African market. This would have raised considerable competition scrutiny, and does not make sense for PPC to become an even bigger player in an already stagnant South African market by merging with one of its biggest competitors.
Meanwhile, former PPC CEO Paul Stuiver has revealed that some members of the PPC board had wanted to do this deal since 2010 but it was decided that the merger produced no value for PPC shareholders. Charl Kocks, principal of Ratings Afrika, also believes that there is no clear strategic reason for PPC shareholders to support this merger as AfriSam’s current debt position is said to be unclear.
It is also believed that the Public Investment Corporation (PIC), which has poured several billions into AfriSam and holds 66% of the company, as well as a 12,57% stake in PPC, pushed for this deal. However, analysts believe the PIC’s instigation of the merger was questionable as it is predicted that it has burnt its fingers on AfriSam.
Meanwhile, Castle says PPC remains committed to its strategy of enhancing the company’s position in Southern Africa and expanding its footprint into other African countries. AfriSam, on the other hand, said it would continue to implement its growth strategy both in the domestic and African markets to enhance value for its stakeholders.
