Reluctant Aveng to offload Holcim stake

Posted On Wednesday, 16 May 2007 02:00 Published by Commercial Property News
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Aveng to return R3,2bn to shareholders from the company's sale of its cement producer Holcim SA

Carl Grim AvengConstruction company Aveng plans to return R3,2 billion to shareholders from the company's planned sale of its 46% of cement producer Holcim SA, the group said on Monday.

It will keep the remaining R3,2 billion for future deals.

But the deal is not done and dusted, and a number of question marks remain notably whether the eventual buyer, empowerment group AfriSam, will be able to raise cash to pay Aveng by June.

Though Aveng will make a profit of R6,45 billion by selling its chunk of Holcim SA at what is considered by analysts to be quite a handsome price the sale is very much a second prize for Aveng CEO Carl Grim.

He would have preferred Aveng to stay invested, but he was elbowed out when the Swiss company Holcim, which held the other 54% of Holcim SA, said it planned to sell nearly all its stake to Afrisam.

Aveng, which wanted control of Holcim SA, then chose to sell.

Analysts say the sale could trim up to 30% off Aveng's earnings in its next financial year.

Independent analyst Mark Ingham said that the Holcim sale meant "my 2008 forecast for fully diluted earnings would, as a rule of thumb, be R1 a share (or about 30%) lower without the equity-accounted contribution from Holcim".

The situation for shareholders is clearly not ideal, but the sale appeared to be the only way out for Aveng.

Said Grim said "We've been in Holcim SA for six decades, but we have a strategy of trying to control the assets in which we invest."

Aveng said that, if shareholders approved the deal on May 28, the company expected to have the proceeds in its account during the first week of next month.

"We'll return at least half of it to shareholders, and then look at the most cost-effective way of (using) the rest," Grim said.

Aveng would clearly like to use the money to buy another com- pany to replace the profit it got from Holcim. However, the problem is that there are few reasonably priced construction assets available.

"There are a number of things we are looking at but, at this point, I'm not 100% sure whether we want to do them or not," he said.

Grim is unsure because the "price of assets right now is high" because of the "enormous amount of optimism" in the construction sector.

Grim said there was a chance that Aveng would plough R600 million into Moolmans, which provides open-cast mining services, for a specific opportunity. He would not give details of the "opportunity".

Aveng would like to have more cash because the banks are becoming stricter about making loans to construction companies.

Ingham says he could accept that Aveng needed to retain cash "but my sense is that R3 billion might be excessive.

" hope that management will refrain from keeping more cash than is optimum for growth."

Ominously, Aveng noted in its circular to shareholders, released on Monday, that the sales agreement "does not preclude Aveng from conducting any business in competition with (that) conducted by Holcim SA".

This suggests that there is a slim possibility that, after Aveng has been pushed out of Holcim SA, it might start a rival cement company to challenge Holcim SA, which controls about a third of the local cement market.

Last modified on Friday, 21 June 2013 23:23

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