JOHANNESBURG (Reuters) - South Africa’s PPC Ltd proposed merging with its nearest rival Afrisam Group on Monday, in a renewed attempt to combine the two and an effort to lead consolidation.
PPC, which abandoned talks with Afrisam two years ago, said it had revived discussions about a potential merger, sending its shares to their highest level in nine months.
“We think that consolidation in the industry will start to happen and we’ve got to make a choice as to whether we want to be the architects and lead that ... or ... let it happen around us and not be sure of the outcome,” PPC’s chief executive Darryl Castle told Reuters following the announcement.
Afrisam, which is majority owned by the Public Investment Corporation pension fund, first proposed a merger in 2014 when PPC’s share price had been under pressure due to infighting between its board and former chief executive.
However, PPC’s share price is up by nearly a third so far this year, after suffering a sharp fall in mid-2016 when the company lost its investment grade debt rating and was forced into a deeply discounted rights offer. PPC’s shares had lost 44 percent in 2015, and nearly 12.5 percent in 2014.
Shares in PPC, which is valued at about 11 billion rand ($823 million) and did not give details of the proposed merger, were up 2.29 percent at 7.16 rand by 1236 GMT.
“The parties have independently concluded that current market circumstances warrant entering into formal discussions to consider the proposed merger,” PPC said in a statement.
The merger would create an entity that is financially stronger and well placed to compete globally, with assets across six African countries.
“In South Africa, PPC is already the dominant player and merging with Afrisam would create an entity with more than 60 percent market share,” Afrifocus Securities equity analysts said, adding that the key issue would be obtaining approval from the country’s competition commission.
PPC, along with South African construction firms, is struggling to grow revenue and sales, partly due to a slow roll-out of a three-year government infrastructure investment package.
It has responded by borrowing heavily to build factories in Ethiopia, Rwanda, Zimbabwe and the Democratic Republic of Congo to boost overseas sales.
($1 = 13.3681 rand)
Editing by Biju Dwarakanath and Alexander Smith