The Media Sector of the Johannesburg Stock Exchange has risen by 70% since the October 1997 crash, but growth has only begun.
Last week’s announcement that the board of industrial giant Johnnies Industrial Corporation Limited (Johnnic) had voted to implement a strategic re-alignment of Omni Media Corporation Limited (Omnicor) sets the sector on a future roller-coaster ride that will ultimately see investors benefit.
Johnnic holds 44% of Omnicor and plans to create an information and entertainment group that will focus on media, information, television, technology and entertainment. Two statements made by the board need to assessed to see how the sector will be affected.
The first statement indicated this was a new direction for Omnicor and the intention was to buy out minorities of Times Media Limited (TML) and Millennium Entertainment Group Africa Limited (Mega), de-list and restructure them, and re-list them separately. Omnicor owns 92% of TML and has 33% direct investment in Mega and 9% through Johnnic. The second statement indicated the process would start immediately.
The first issue is that this trend is not new, but a resumption of a process that started in 1994 with Omnicor’s sale of Argus Newspapers to Independent Newspapers. The restructuring slowed down in 1995 when Johnnic was formed. It seems that lack of direction in the Johnnic board halted the process.
The second issue is that plans for the restructuring could start immediately, but the actual process will take much longer.
Mike Brown, media analyst at EW Baldersons, says: “The dilution of participants and their different agendas makes it difficult for a restructuring process to be quick. I believe that the earliest the final restructuring will take place is early 1999.”
Restructuring will be good for Omnicor, but every delay will affect the share price. Possible problems include the time it will take for Johnnic to raise R5,5-billion to buy out the minorities. However, analysts say this must be taken as a buying opportunity.
But who will buy the TML and Mega shares? There are 23-million TML shares at R40 a share and 362-million Mega shares at R6,35. Even major institutions will struggle to raise more than R3,2-billion.
It is more likely that Johnnic will try to find suitable media companies to buy part of these two groups. The first of two possible suitors is Primedia. A number of divisions would fit well with Primedia. For instance, Omnicor’s stake in M-Net would give Primedia a short-cut to a TV operation and enable Primedia to target the video market.
A recent report by stockbrokers CA Miller Raw & Co states: “On the Mega side, its music operations would bolster Primedia’s push into this market. However, a major problem area would be on the cinema exhibition business of NuMetro, which,given Primedia’s investment in Ster Kinekor, would certainly be opposed by the Competition Board.”
Omnicor’s new Internet operation, M- Web, fits well with Primedia’s focus on this industry. But businesses which do not fit include TML’s newspapers and Caxton.
Another possible predator is New Africa Investments Limited (Nail). This company is aiming to acquire Omnicor’s cellular networks to complement its 44,7% ownership of Naftel or 10% stake in MTN. The latter would offer less resistance from the Competition Board. There is also speculation that Nail is after TML’s Sunday Times.
Meanwhile, investors will see the Omnicor share price rise to about R118 from its present R100 level. The share will languish here until details of the unbundling emerge, which will be followed by a rise to about R150.