Tim Wood
American notes
Iwas bitterly disappointed to learn that M-Web intends delisting. It’s not that it was a surprise since Moneyweb first reported on the delisting rumours, but to see it announced was a shock.
M-Web was the point stock for Internet plays and it has given up with hardly a shot being fired.
Management will get the raspberry it deserves for this, but we cannot ignore the negative effect on the South African Internet market.
Absa’s late entry to the Internet added an intriguing dimension to the local industry. But instead of rising to the challenge, M-Web surrendered to Absa’s intimidation. M-Web’s public statements about its new competitor betrayed an unnecessary siege mentality. Everything M-Web did after the Absa launch served to make its competitor victorious before it could be tested.
Of course M-Web’s not going away as a business, but the fact that it wants to throw in the towel as an independent entity because of a low share price is shocking and casts a pall over other Internet ventures. M-Web has done yeoman’s work to build the market that benefits everyone, but why won’t it finish the job it explained in its prospectus?
Investors must be infuriated at how panic-stricken M-Web management has become. Quite where the blame lies is unclear because there are a lot of chefs stirring the M-Web pot, but the company has become synonymous with rashness and indecision. For example, M-Web CEO Antonie Roux, on Moneyweb’s Classic Business, emphatically denied market talk that a delisting was being considered. Were investors being intentionally misled or was the management so ineffectual that it would buckle under the weight of a rumour and turn it into a fact? Either way, M-Web’s reputation is in a deep, dark hole.
Ironically, M-Web’s share price has been quite stable recently, so it’s not as though Nasdaq’s pity party can be blamed. Yet it is.
Naspers MD Koos Bekker tries to be a pragmatist by saying that there’s a new market reality, but it doesn’t jibe at all with the company’s earlier statements that heaped praise on the Internet market reality as a permanent structural change that would sweep away everything before it.
Bekker’s statement is more alarming because it suggests that M-Web and Naspers are happy to play the system at shareholders’ expense.
Investors hate that and they have long, long memories. We all know that market conditions change, but serious companies don’t flip-flop with the business cycle, they ride it out and stay true to a core set of wealth-creating values. Imagine Anglo American swapping its resources business for something else every time the commodity cycle turned down? The best reputations are made in the toughest markets.
M-Web also professes to have seen the light in the form of AOL Time Warner: “Recent events indicate that greater economies can be achieved by integrating e-businesses more tightly with traditional media businesses.” It’s not a false statement, but it is disingenuous. If comparisons are to be drawn then recall that AOL acquired Time Warner, not vice versa.
If the M-Web counter was trading at R8 and the company was still burning through as much cash and adhering to the same wobbly strategy, this announcement would not have been made. That’s the present market reality and it looks selfish and shortsighted.
The reasons given for favouring a delisting are not at all plausible, but they do illustrate a problem that has plagued M-Web since its establishment a lack of resolve.
M-Web has ridden every sub-trend in the industry like a giddy toddler, never managing to fasten itself to one and follow through. It’s almost as though it never quite believed what it expected investors to believe. It claimed to be a media company, but its actions were anything but those of a media company.
The lack of resolve manifested in an erratic strategy, but the damage was done through overspending. When the prequel to M-Web bought the Council for Scientific and Industrial Research’s connectivity business in 1996, there were questions about the price paid for assets of dubious quality. But all credit to M-Web for making it ship-shape and giving Internet Africa something to worry about.
While connectivity, and the marketing of it is something M-Web has always excelled at, it was lousy at content.
There was always a perpetual discomfort in the relationship with Naspers that never allowed media integration to be exploited. One result was the very dumb idea of buying control of the Daily Mail & Guardian when Naspers was developing its own online venture in the costly form of 24.com.
The rationalisation of operations in 1999 revealed costly duplications that had sucked in enormous quantities of capital with little reward. Corporate jealousy meant that the DM&G would always be treated as a second-class citizen to News24, despite it being the superior product.
That was well illustrated when the respective management teams were at each others’ throats over the decision to block non-M-Web dial-up access to the DM&G, which craves its independence.
Similarly, M-Web paid iafrica.com a fortune for the licence to its failed push product that became M-Pulse. It lasted less than a year before being dropped as the killer app as M-Web hopped back and forth between B-2-B, B-2-C, denominational modems, exclusive browsers, emerging markets and so on.
It also overpaid for Pix in December 1997, a mistake that was replicated in buying content at nearly any price to fatten its portal. Small fortunes were made selling products and services to M-Web in the first two years and the company has been the butt of jokes about a lavish corporate lifestyle.
Those jokes might dry up if M-Web focuses on becoming an infrastructure facilitator for its parent, as hinted at in last week’s announcement. It could flourish as the “plumbing” expert to Naspers and M-Net, helping them to realise their convergence ambitions.
But for as long as it tries to replicate their media activities rather than complement them it will be a drag that gives Johnnic the competitive edge.