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PPC-Afrisam merger revived as other bidders circle

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World Cement,

The saga of Afrisam’s attempted merger with South African rival, PPC, has taken a new turn with the entry of three new players: one in support of Afrisam; two to rival it.

According to a PPC statement to the Johannesburg Stock Exchange, the company has received an offer from Fairfax Africa Investments Proprietary Ltd of ZAR2 billion for a partial stake in the company. The offer is conditional upon the merger of PPC and Afrisam.

The news came after Afrisam terminated a proposal regarding a merger of the two cement makers at the end of August. At the time, however, Afrisam indicated that it intended to return with a revised merger proposal.

Fairfax is a subsidiary of Fairfax Africa Holding Corp., a Toronto-listed investment holding company with a market capitalization of over US$600 million and about US$400 million of cash available for investment. Fairfax Africa’s controlling shareholding is Fairfax Financial Holdings Ltd, another Toronto-listed company, which holds interests in casualty insurance and reinsurance, and investment management.

Under Fairfax’s offer, it would acquire shares representing ZAR2 billion of the issued and outstanding capital of PPC held by all shareholders of the company other than management and any shareholders not entitled to dispose of their shares.

Under Fairfax’s offer, PPC would be required to approve the merger with Afrisam by the end of the year. The terms proposed would see PPC acquire all of the shares in Afrisam in exchange for shares in PPC on an exchange ration of 58 PPC shares to 42 Afrisam. Before the merger, Fairfax would take a stake in Afrisam in exchange for a ZAR4 billion cash injection.

Fairfax’s offer is also conditional upon the regulatory approval from South Africa’s competition authorities, South African Reserve Bank, and the Johannesburg Stock Exchange, among others.

PPC’s initial response to Fairfax’s offer was lukewarm, however: according to the company statement, the offer “fundamentally undervalues PPC and, when considered in conjunction with the proposed merger ratio, does not constitute sufficient compensation for PPC’s shareholders.”

Further potentially bad news for an Afrisam-PPC combination came with the revelation that Afrisam was no longer the only game in town. In its statement, PPC disclosed that it has received confidential takeover proposals from two other parties that offered a “potential pan-African combination with PPC.” No further information as to the identity of the bidders was provided, but the bids were "sufficiently credible and potentially value enhancing to shareholders to merit careful consideration and further engagement." 

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