M-Net is planning to unbundle MultiChoice. Jacques Magliolo=20 asks whether this move will benefit shareholders=20
Electronic Media Networks (M-Net) is once again warning=20 shareholders to trade their shares with caution.=20
M-Net is proposing to unbundle MultiChoice into two=20 separate entities and has returned to the market with=20 promises that the unbundling will benefit shareholders. In=20 addition, M-Net and MultiChoice shares are to be de-linked=20 on the Johannesburg Stock Exchange (JSE).
How can the directors expect shareholders to believe that=20 the proposed restructuring will benefit them, particularly=20 following the company’s inability to sustain earnings=20 growth over the last few years, or even uphold vital=20 promises made to the investment community at the time it=20 listed in August 1990.
During the months preceding its listing on the Beverages,=20 Hotels & Leisure sector of the JSE, M-Net made a series of=20 promises to analysts, which the directors have, in a short=20 five years, completely ignored.
At the time of the M-Net listing I was employed at Frankel=20 Pollak Vinderine (then called Frankel Kruger Vinderine) as=20 an industrial analyst and was directed by chief executive=20 Sidney Frankel to assist the head of industrial research,=20 Mike Howarth, (now with Silvis Barnard Jacobs Mellet) to=20 undertake an analysis of the company. Part of the task=20 included holding discussions with the company’s financial=20 manager Steve Pacak and chief executive Koos Bekker.
At these meetings M-Net directors made a number of crucial=20
* M-Net’s original shareholder structure would never be=20 dissolved — either directly or indirectly.
M-Net was created by a consortium of newspaper groups in=20 order that its shares would never end up in a single=20
When television was first introduced in South Africa, it=20 posed an enormous threat to the country’s main publishing=20 houses, particularly the daily newspapers, because of the=20 potential loss of advertising revenue.
After negotiations with the government, the six main=20 newspaper groups formed M-Net Holdings, which owned 78,9=20 percent of M-Net’s shares. The consortium comprised=20 Nasionale Pers (35,4 percent), Perskor (13,6 percent),=20 Argus Holdings (23 percent), Times Media Limited (23=20 percent), Natal Witness (2,5 percent) and Dispatch Media=20 (2,5 percent). The remainder of the shares rested with the=20 public (13,1 percent), through an offer to M-Net=20 subscribers, and management (8,0 percent).
M-Net is no longer controlled by six newspapers, but, in=20 effect, only two. Since Argus Holdings was restructured=20 into Omnicor, whch obtained greater control of Times Media=20 Limited (TML), Omnicor now owns nearly 40 percent of M-Net.=20 The only other main shareholder is Nationale Pers.
Some analysts call the latest restructuring “third=20 generation investment” and say that it will offer=20 shareholders exciting opportunities. But this ignores=20 Omnicor’s bid to control the electronic media through its=20 92 percent control of TML and M-Net.
* M-Net would not be involved in activities outside pay=20
Since its listing, M-Net has taken an active role in=20 pursuing cellular phone technology, has invested millions=20 into foreign markets and now it intends to be involved in=20 satellite technology. Investors may wonder what development=20 costs will amount to.
Already the company is on an unprecedented price earnings=20 ratio of 1 000 times (years it will take an investor to=20 recoup the price of the share in terms of company profits),=20 a dividend yield of 0,5 percent and a earnings yield of 0,1=20 percent. How loyal can shareholders be?=20
Admittedly, analysts underestimated the company’s=20 potential. During its first year of operations. Howarth and=20 I forecast a share price of 145 cents a share in its first=20 fiscal year, but the company achieved that on its first day=20 on the JSE. However, the company then seemed to have focus.
* Given the cash nature of the business, M-Net does not=20 need to have rights issues for the foreseeable future.=20
The directors’ reasons sounded logical, given that the pay=20 channel targeted the middle- to upper-income population and=20 that, with more than 429 000 subscribers on its books, the=20 company would receive more than R30-million in=20 subscriptions a month during 1990.
But the company has had two rights issues in the last three=20 years, mostly to pay for expansion into unknown, foreign,=20 highly competitive markets.
Now, the company is coming back to the market to ask=20 shareholders for patience and not to trade during these=20 dealings. Why not?