The shrinking of Johncom

Barney Barnato would hardly recognise what’s left of the rapidly disappearing Johannesburg Consolidated Investments (JCI), the mining empire he formed in 1889.

Barnato was long gone by the time Johnnic had shape-shifted into a mining, industrial and media empire. The dismantling of the group started in 1995 with the unbundling of the mining and industrial interests. Last week took another step towards complete evisceration with the announcement that Johncom, the media remnants of JCI, would sell its 38% stake in M-Net and SuperSport to Naspers for R3,3-billion.

This leaves it with its publishing arm, which includes the Sunday Times and half of the Financial Mail, as well as Nu-Metro, Gallo and a few other assets.
More importantly, this opens the door for Caxton to make a bid for what’s left of the group. Caxton is keen to get its hands on Johncom’s publishing content and take over its printing.

Analysts believe this is only likely to happen later in 2007 once the unbundling of M-Net and SuperSport is complete, leaving a cleaner target for Caxton.

The rationale given for the unbundling is to “unlock value”. The two biggest shareholders, Allan Gray and ­Coronation, are believed to have pushed for the sale of the electronic media assets, and it is curious that they are also shareholders in Naspers. One analyst, who asked not to be named, says there is no conflict of interest here, as Johncom shareholders are getting a good price for these assets — equivalent to R29 a share, against the R20 to R22 price tag expected by most analysts. Johncom’s acting CEO Prakash Desai says the board was not unanimous in its decision to sell, prompting suggestions that the non-executive directors on Johncom’s board forced the issue.

If the purpose was to unlock value then it seems to be working. Johncom’s share price shot to R76 this week from R68 a week ago. The latest sale leaves Johncom with a gaping hole in its income statement, and an uncertain way forward, given its stated goal of achieving media “convergence” — in other words, the marriage of electronic, print and other media. Analysts believe the company still has value, particularly as efforts are now under way to maximise selling opportunities across the different brands.

M-Net and SuperSport accounted for 44% of Johncom’s profit and this will be sorely missed. Naspers’s motivation for the deal is clear: to position itself for a competitive avalanche as new pay-TV licenses are issued next year. It already owns 60,1% of M-Net and Supersport.

Naspers financial director Steve Pacak says the new competitive environment in pay-TV will increase costs and put pressure on cash flows.

Barnato would no doubt protest the down-sizing of the empire he crafted more than 100 years ago. By the mid-1990s Johnnic owned gold, platinum, coal and base metals mines, 13,7% of South African Breweries, more than a quarter each in Toyota South Africa and food group Premier, as well as interests in newspapers and cellphone company MTN.

The Anglo American-controlled group was unbundled in 1995 into JCI Limited, housing its gold, coal, base metals and ferrochrome interests, and Johnnic Industrial Corporation, housing the industrial and media businesses. In 1996 Mzi Khumalo and African Mining Group bought 30% of the 47,5% in JCI held by Anglo and De Beers. A year later the gold price had tanked, and Khumalo was forced to sell off some of Barnato’s crown jewels to meet the funding calls. The same year Brett Kebble launched his secret bid for control of JCI, and by the time he was murdered in 2005 he had plundered it into insolvency.

Johnnic’s industrial interests fared somewhat better. In 1998 management decided to transform from a passive industrial conglomerate into a focused telecommunications, media and entertainment group. The publishing arm, later renamed Johnnic Communications (Johncom), was split from Johnnic, so there were now three holding companies tracing their parentage to Barnato: JCI, Johnnic and Johncom.

Johncom’s assets include the flagship Sunday Times, 50% of BDFM (which owns the Financial Mail and Business Day), Sunday World and Sowetan, and various other papers and magazines. Other brands include Nu-Metro, Map Studio, Gallo and Exclusive Books.

In 1999 the group sold its non-core assets, including South African Breweries, Toyota, 17% of Metro Cash and Carry and 3,9% of Edgars. At the same time it increased its stake in MTN to 47,4%, and later unbundled this in 2003.

This left Johnnic with some properties, R1-billion in cash and an indirect interest in Tsogo Sun hotels and casinos, through its 20% shareholding in Fabvest. Johnnic sparred with HCI for control of these hotel and casino assets and lost.

Should Caxton make its bid for Johncom next year, Barnato’s empire will have all but vanished.

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