Dangote Cement, owned by Africa’s richest man, Aliko Dangote, will emerge the dominant player in the South African cement market if its planned acquisition of South African cement maker PPC succeeds.
PPC is currently the largest cement producer in South Africa, with total production capacity of about 5.5 million tonnes. Sephaku, another cement producer in the country, where Dangote Cement already has 64 percent stake, is the fourth largest cement producer, with annual capacity of about 2.3 million tonnes.
A business combination between Sephaku and PPC, which will happen if Dangote acquires PPC, will lead to a combined capacity of about 7.8 million tonnes, representing about 46 percent market share in the South African cement industry which has total capacity of about 17 million tonnes.
Dangote announced yesterday that it has joined the race to buy PPC, which is already the subject of a take-over bid valuing the company at $700 million.
Dangote Cement, which is controlled by Dangote, is the biggest cement maker in Africa, with a capacity of nearly 46 million tonnes a year.
The expression of interest from the Nigerian company with a market capitalisation of $12 billion raised market hopes of a bidding war, sending PPC shares 5.5 percent higher to 6.29 rand.
PPC’s local rival, AfriSam, the second biggest cement producer in South Africa, launched an all-share merger proposal for South Africa’s biggest cement maker last week and PPC said it also had a third offer that was “credible and potentially value-enhancing for shareholders”.
“From the previous offer that was made, it was agreed in the investment community that it was undervalued. So now when the next bidder makes an offer and doesn’t put a price, there can only be speculation to the upside,” said Afrifocus Securities equity analyst, Tinashe Kambadza. “Economic rational aside, it will all be about the bid premium.”
The expansion of Dangote and the entry of new firms across Africa has led to an oversupply of cement-based products and competition, as companies try to win market share. In February, former PPC chief Darryl Castle, said PPC would be the “architects” of consolidation in the industry.
Dangote Cement Plc (DCP), which has operations in 10 countries, is already present in South Africa, through its 64 percent holding in Sephaku Cement.
“DCP hereby confirms that the board of directors of DCP has merely communicated its interest to the board of directors of PPC with respect to the acquisition of the entire share capital of PPC,” the Nigerian company said.
“This communication is still at the preliminary stage.” PPC said in a statement, that its independent board was considering the Dangote proposal.
Shares in Dangote rose 5 percent to N211.5 ($0.69) in Lagos, after the takeover approach was announced.
The PPC board has already said AfriSam’s all-share proposal valuing PPC shares at 5.75 rand “fundamentally undervalues” the company, adding pressure on its local rival to sweeten the deal.
AfriSam and its backer, the African division of Canada’s Fairfax Africa Holdings, want to create an African cement giant with operations in six countries and the financial firepower to take on regional rivals, such as Dangote Cement.
Last Monday’s merger proposal was AfriSam’s third attempt in three years to buy PPC. 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.
If Dangote succeeds in buying PPC, the merged company would have a combined cement capacity of more than 57 million tonnes a year and give Dangote a majority of the South African market.
