PPC and Afrisam have entered into formal talks to assess the merits of a merger between the two cement producers at a time when competition in the industry is red-hot with the arrival of a number of newcomers.

The proposed deal will create a South African-owned cement producer that is financially stronger, operationally more efficient and has deeper technical capability, PPC says.

The company’s share price jumped as much as 10% to R7.71 on Monday morning, the best level since August. It closed 3.43% higher.

The groups had terminated merger talks in 2015 after JSE-listed PPC, SA’s biggest cement maker, decided against the “merits” of such a deal with unlisted rival Afrisam. It had instead focused on developing greenfield and brownfield projects in other parts of Africa.

But PPC said on Monday the two parties had concluded market circumstances warranted formal talks to consider the proposed merger. “As part of such discussions, the parties will jointly assess the value that they believe can be realised for the shareholders of PPC and Afrisam if the proposed merger is implemented.”

PPC and Afrisam are searching for growth opportunities on the continent to offset a tough domestic market, which is under pressure from low demand, oversupply and competition. PPC is commissioning and rolling out new as well as upgraded plants in Rwanda, Zimbabwe, the Democratic Republic of Congo and Ethiopia.

Afrisam has a cement plant in Tanzania.

Mish-al Emeran, an equity analyst at Electus Fund Managers, said on Monday more financial details were needed before he could pronounce on whether such a union was feasible. “While PPC management [has] emphasised that this is a “friendly” merger process, given the lack of details it is not clear which shareholder group will benefit, or how the deal will or can be structured,” he said. PPC was the dominant player in the domestic cement market, and after a recent R4bn rights issue it had a balance sheet that could withstand current tough trading conditions, Emeran said. This might imply that Afrisam had the greater need of a merger.

“This looks to be a complex deal and could end up being a drawn-out process that could take a minimum six months and maximum 12 months.” He also questioned how PPC’s other African projects would be valued.

•Text courtesy of Business Day SA.

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