The battle for the soul of Nail has “shaken up people who believed they are entitled to [Nail’s] media assets”, says Fani Titi, CEO of Tiso Capital, the new frontrunners to secure the pioneering empowerment group.
Titi added that the events of the past week, including Johncom’s challenge to Tiso at the Competition Tribunal, showed growing “maturity” on the part of black business.
It was a point taken up by Saki Macozoma, Nail CEO, who said he would like to have seen someone take over and continue the Nail brand. “But black business must overcome emotional attachments to assets. After all, we are judged by how much money we make for our shareholders.”
Titi spoke to the Mail & Guardian this week after the rival bidding consortium of Johncom and the Kagiso Group brought an urgent application to the competition authorities to block the bid.
The Johncom consortium comprises Johncom, Kagiso and Caxton/CTP. Tiso consists of the Tiso group, the Mineworkers Investment Corporation (MIC), Capricorn, Safika and Investec.
On Thursday, the tribunal was to hear Johncom’s application requesting it to block an implementation of “special arrangements” between Tiso and some of its consortium members. Last week, Tiso secured an agreement with Phaphama, the controlling shareholders of Nail, to support its bid for Nail. Phaphama comprises, among others, Safika, which Macozoma co-owns.
Johncom argues that the agreement amounted to a notifiable transaction and should first have been reported to the competition authorities. It also lodged an appeal with the Securities Regulation Panel (SRP).
Johncom CEO Connie Molusi earlier expressed discomfort about Safika voting. However, he remained confident that Johncom’s offer would be accepted after the Nail board made a favourable recommendation to shareholders.
Two weeks ago, the SRP cleared Safika to exercise its right to vote as a Nail shareholder, even though it was part of a rival bid. This week, Molusi again raised his misgivings, pointing to Safika’s position as standing to gain — at R10,50 a share — R14,5-million and fees of around R3-million as corporate finance advisers. He also questioned its depth of skills in corporate finance.
Titi said he did not believe Nail’s minority shareholders would be prejudiced, noting that they had complied with SRP disclosure requirements. He said he expected directors to exercise their fiduciary responsibilities.
On Wednesday Tiso turned up the heat by announcing that it had secured the support of 82% of Nail’s N Shareholders and 32% of ordinary shareholders.
Titi said he believed his group’s offer was superior to Johncom’s. “If not, then why have I got fund managers rushing to the door?” he asked.
The Tiso consortium has offered to pay Nail shareholders R10,50 a share, while Johncom has offered close to R11 a share. The key difference is that Tiso will pay the cash to shareholders who are willing to exit Nail and then assume the entire risk of selling Nail’s listed assets.
Johncom will pay R3,45, with the balance depending on what it calls “decapitalisation”, the sale of listed assets and distribution of cash held by Nail. The fluctuation in value of these assets represents the greatest risk for shareholders.
Titi added: “Even for shareholders who choose to stay, this offer is still superior.” This was because Johncom had offered R381-million for Nail’s media assets, which include The Sowetan, Kaya fm, Kfm and Nail Outdoor.
Titi pointed to sell-on agreements already in place. The consortium agreed to sell Nail Outdoor and Kfm to Primedia, which is partly held by fellow consortium members the MIC. These alone have secured R220-million.
Titi believed Tiso could realise far more than Johncom’s valuation.
Johncom argues that it will be sidelined as a potential buyer of the media assets. Ahead of the hearing, Molusi insisted Kfm and Nail Outdoor should be put to Johncom and Kagiso.
Titi denied any intention to sideline, insisting that Johncom and Kagiso remained potential buyers of all the other assets. “This is an opportunity to create critical mass by placing viable assets in the hands of key players,” he said, adding that there was scope for new entrants in the media industry. Molusi also believes in the importance of creating a higher value media sector on the JSE Securities Exchange.
Titi said he had been impressed by the maturity shown by rivals using institutions like the Competition Tribunal and the courts to make their case. “All I am saying is let’s compete. Let us not deteriorate to the gutter.”
He also dismissed suggestions that he could be emerging as a new media mogul. This transaction is handled by the private equity arm of Tiso.
The eventual sale of Nail also turns the spotlight on Macozoma, who presided over its final chapter. He took over in 2001, after Nail had shrunk from a R16-billion giant financial services and media group to a more focused media group by unbundling Metropolitan, African Merchant Bank and African Bank in 1999.
Reflecting on his tenure this week, he said: “We entered into joint control of Nail to build a media player.”
Macozoma said he had outlined a path to the current scenario at Nail’s first board meeting last year, soon after the Independent Communications Authority of South Africa had blocked its mooted takeover of Kagiso. The options were to grow media by acquisition, to ring-fence media assets and diversify, or “do the unthinkable” and sell.
His consortium’s bid was the more favourable, he said, because it was closest to the net asset value of between R11 and R12, with minimal risk.
After the 1999 unbundling, Nail traded at R7 a share. This then fell to R5, “which was less than the cash at hand, a situation you could not allow to continue”.
Macozoma described Johncom’s parent company, Johnnic, as “not sincere” in its intention to sell Johncom earlier this year. Jacob Modise, Johnnic chief operating officer, rejected the claim.
There were also market rumours that Safika tried to buy Nail, which Macozoma denied to Business Times. This week, he confirmed that the approach was for Nail’s media assets. However, it was unsuccessful because “no strategic decision had been made to sell these”.
Asked why he was shouldering so little economic risk by holding only 5% in the Tiso consortium, he pointed to “the opportunity cost and appetite for risk”. As a corporate financier, Safika did not have subsidiaries it could pass the assets on to, as the MIC could do with Primedia and Tiso Private Equity with Kagiso.