Minority shareholders raise concerns over Lafarge Africa deal

A group of minority shareholders has raised concerns about the deal proposing a combination of the Nigeria and South Africa businesses of Lafarge Cement Wapco plc.
South Africa based fund management company, Coronation Fund Managers, which says it has more than $200 million invested in the Nigerian equity market, with $10 million of that amount across its Africa funds in Lafarge,
said the deal is unfavourable to minority shareholders of the company.

The complaint comes ahead of next week’s voting by Nigerian shareholders to approve the deal.

The Fund raised three points of concern relating in particular to pricing and valuation, suggesting that these have been skewed against minority shareholders in Nigeria in particular.

“The price being paid by Lafarge WAPCO of N215.3billion ($1.35billion) for incremental earnings of N10.3billion,implies a price earnings multiple of 20.9x for the acquired assets,while Lafarge Wapco currently trades on a 12.5x multiple,” Coronation stated in a letter sent to BusinessDay.

It noted that,“by issuing shares at a rating that is 67% lower than the rating on the acquired assets, minority shareholders are greatly prejudiced.” It complained about the basis of arriving at a higher valuation for the South African assets, a market it said was ‘slow growing and in a mature market.’

“Of the $1.35billion deal, 60% relates to the South Africa assets. These assets are slow growing and operate in a mature market. Lafarge S.A are looking to sell their SA assets in exchange for shares in Lafarge WAPCO, an undervalued, high growth company operating in one of the most attractive cement markets on the continent. Lafarge S.A will have increased their shareholding in Lafarge WAPCO from 60% to 73% following the deal at the expense of minority shareholders,” Coronation explained.

But Joe Hudson, managing director/CEO, Lafarge Cement WAPCO, in an exclusive interview with BusinessDay, said there were no fears to be entertained by minority shareholders, describing the deal as ‘fair to all.’

Hudson explained that KPMG Professional Services did fairness evaluation of the deal after Standard Chartered Bank’s deal valuation, insisting that negotiation for the deal was done by Nigerian directors, and not by Lafarge.

“We believe that this is such a good deal for minority shareholders. They should carry the way at the voting. Some of the minority shareholders including Coronation have asked us for more information about the deal and we have provided them enough, even on our website,” he said.

According to him the new entity will have nationwide coverage in both Nigeria and South Africa, with cement capacity of about 12 million tonnes, as well as operations in aggregates, ready-mix and fly ash. He added that the strong operational track record and management skills within the combined businesses, as well as continued support and expertise from Lafarge Group would position Lafarge Africa to offer a full range of value added solutions to meet customers’ needs.

“There are multiple ways of evaluating a deal. What we are paying for is a great value for shareholders. We see a lot of potentials in the deal. It is a cash positive business. It is a steady market; we are also managing our risk to leverage and build further expansions in Africa,” he stressed.

Hudson explained further: “When you invest, you have to decide on your strategy. For us, cement business is a long term business. In the medium to long term, we have a lot of hope in the business. This deal is the only way to make the most of the opportunities that are out there for us in Africa.

“The only way is to create a platform for growth. Nigerians are very excited about the deal. This will also provide a platform for liquidity in the market. Our intention is not to increase our shareholding, but to create liquidity in the market. We also want a greater platform for expansion.”

Chief Financial Officer, Anders Kristiansson, wading in during the interview, told BusinessDay that, “with this investment, we have the potential to grow our balance sheet, leveraging on the potentials of the markets.

“We met with the shareholders in South Africa, including Coronation Fund Managers. We also had meetings with analysts, where we made presentations before a road show,” he said of the process leading up the deal’s announcement.

Barely one month ago, Lafarge Group disclosed its intention to transfer all of its shares in its businesses in Nigeria and South Africa into Lafarge Cement WAPCO Nigeria plc (Lafarge Wapco), a deal which when finalised will
result in Lafarge Cement WAPCO Nigeria plc being renamed Lafarge Africa plc.

Lafarge Africa, owned 73% by Lafarge Group, will remain listed on the Nigerian Stock Exchange. Under the proposed terms, Lafarge Group will transfer its direct and indirect shareholdings in Lafarge South Africa Holdings (Pty) Limited (100%- representing 72.4% of underlying companies in South Africa), United Cement Company of Nigeria Limited (35%), Ashakacem Plc (58.61%) and Atlas Cement Company Limited (100%) to Lafarge Wapco.

The transaction will be concluded through a cash consideration of $200million and the issuance of 1,402,575,984 Lafarge Africa shares to Lafarge Group.
The transaction which is subject to Lafarge Wapco shareholder approvals next week and requires regulatory and other customary authorisations, will be completed in second-half (H2) of 2014. Lafarge will next week be seeking shareholders consent for this deal.

 

Iheanyi Nwachukwu