South Africa’s Competition Tribunal has reserved judgment on a proposed merger involving the Public Investment Corporation (PIC) and cement producer Afrisam, after the Competition Commission proposed that the deal be approved with certain conditions. The conditions suggested were designed, the commission said, to ensure that the potential for information exchange between Afrisam and PPC, in which the PIC also holds an interest, was avoided.

Under the proposed deal, precipitated by a move to restructure Afrisam’s material debt burden, the PIC was seeking to convert its preference shares into equity in a bid to reduce Afrisam’s debt by more than R15-billion. Such a conversion would result in the State pension fund administrator gaining a controlling interest in Afrisam.

Implementation of the deal, which has received the backing of 80% of noteholders, was subject to shareholder and noteholder votes, as well as regulatory approvals. The participants had agreed to work together to complete the restructuring by August 1, 2012.

PIC CEO Elias Masilela has argued that the agreement would pave the way for a comprehensive solution that was in the interest of jobs, the economy, black economic empowerment and the PIC’s stakeholders, including members of the Government Employees Pension Fund.

“It is the culmination of three years of attempts to find a solution to the over-gearing that resulted from the acquisition transaction that created Afrisam,” he said recently, adding that he was hopeful that the remaining stakeholders would become signatories to the restructuring agreement.

It is understood that Bunker Hills and Holcim had applied to block the conversion. Holcim, which retains a 15% stake in the business, facilitated the creation of Afrisam in 2006 by selling 37% of its South African business to black investors, led by Bunker Hills.

The Competition Commission proposed that the tribunal impose restrictions on the merger, owing to the fact that the PIC also holds a position in PPC, South Africa’s largest cement producer.

The commission raised a concern about the likelihood of anticompetitive information exchange resulting from cross-directorships between PPC and Afrisam, which could lead to collusion.

It noted that Afrisam and PPC together constitute more than 70% of the already highly concentrated cement market.

The conditions proposed would include a stipulation that the PIC could not have board representation at PPC, or any other cement producer in South Africa, for as long as it controlled Afrisam.

Further, the PIC would be required to ensure the continued application of existing Chinese walls between the teams handling its investments in Afrisam and in PPC.

The tribunal indicated that it would make a decision on the matter at a later date.

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