Prudential Investment Managers advise against AfriSam merger with PPC

Prudential Investment Managers, one of the top three shareholders in PPC, says it opposes a proposed merger between South Africa's largest cement group and its unlisted South African rival AfriSam.

Prudential, which holds 13-14 per cent of PPC, said it wanted "other shareholders to think twice" about such a transaction. It said AfriSam’s recent revised offer, which had the backing of Canada’s Fairfax Africa Investments, undervalued the group. It believed PPC’s share price would double in the next three to four years with the ramp-up of its rest of Africa operations including those it owns in Ethiopia, Rwanda and the Democratic Republic of Congo.

"The shareholders have been asked to back a short-term gain," Chris Wood, Prudential's head of equity, said on Monday. "From this point forward, there will be a material improvement in [PPC's] cash flow."

Fairfax was using PPC's earnings before interest, tax, depreciation and amortisation in the year to March 2017 as a basis of reported profits. This was not a fair representation of the group's earnings, Wood said. However, the Public Investment Corporation, which holds a 15 per cent share in PPC, has supported the latest AfriSam conditional partial offer.

Fairfax has undertaken to buy ZAR2bn of ordinary shares in PPC at ZAR5.75 a share (US$0.42/sahre). The proposed merger ratio is based on a share exchange of 58 PPC shares for 42 AfriSam shares.

The company also received a nonbinding "communication of interest" from Nigeria’s Dangote Cement to buy its entire share capital. PPC’s board earlier advised of indicative proposals from two other bidders.

The group said it would cut capex between 16 and 35 per cent until 2019, and would focus on bringing its other investments in the rest of Africa into operation, including in Zimbabwe. These new operations would raise group cement production capacity, from 8Mta in 2015, to 12.4Mta by 2018.