Pretoria – PPC shares rose by almost 3 percent on Monday after the listed cement and lime producer and AfriSam, two of South Africa’s biggest cement producers, jointly announced that they had entered into formal discussion to assess the merits of a potential merger.
AfriSam, which was previously known as Holcim South Africa and was taken over by the Government Employees Pension Fund in December 2011, made a conditional, non-binding proposal to PPC in December 2014 about a merger, but PPC rejected that proposal a few months later.
Shares in PPC closed up 2.86percent at R7.20 on the JSE yesterday.
PPC chief executive Darryll Castle said PPC and AfriSam had independently concluded that current market circumstances warranted entering into formal discussions to consider a merger.
Castle said a number of things had changed since two years ago when PPC first contemplated a merger with AfriSam.
He said from a competitive landscape viewpoint, two new cement players were in 2015 planning to enter the South African market, but had not yet done so, which presented difficulties in terms of assessing the competitive landscape and therefore the view of the competition authorities about the proposed transaction.
This had added a huge amount of uncertainty, but both of those new entrants had now entered the market and the impact on the market was known, with cement prices declining and the profitability of the sector suffering, he said.
“Today there is a better understanding of the landscape for the competition authorities to consider when reviewing a transaction,” he said.
Castle said other changes that had occurred included that the South African economy had been a lot slower over the last two years, which had also impacted the sector, and there were now six producers in South Africa, which was too many for the cement sales volumes in the country.
“Consolidation is inevitable and we think the timing is right for this transaction. We would rather become an architect of consolidation than have it happen around us,” he said.
Source: BUSINESS REPORT