/ 3 December 2007

BEE’s bid for the news

The bid by Koni Media to buy Avusa, formerly Johncom, has highlighted a long-time BEE fascination with newspapers. From a business point of view, there are other lucrative and less troublesome areas for investment and BEE investors need cash flow to pay back the money they have raised, writes Reg Rumney.

The bid by Koni Media to buy Avusa, formerly Johncom, has highlighted a long-time BEE fascination with newspapers.

From a business point of view, there are other lucrative and less troublesome areas for investment and BEE investors need cash flow to pay back the money they have raised.

Even in the media area, broadcasting is more attractive, though highly regulated, and potential exists for some big deals. Political pressure could surely be brought to bear on government to divest at least one of the SABC’s channels for BEE ownership.

But here we have the bid by Mvelaphanda’s Tokyo Sexwale to buy 25% to 30% of Avusa, probably for about R2,5-billion, depending on the empowerment discount, on top of Koni’s offer to buy the entire company for four times that amount.

That is quite a sum to get together, especially when there are more juicy plums than a company like Avusa that no longer will have the cash cow of pay-TV as the company divests its lucrative M-Net/Supersport stake and its stake in Caxton publishers and printers separately.

Although it has some lucrative titles, chiefly the Sunday Times, Avusa does not have the international reach of multinational Naspers or the local dominance of Independent Newspapers.

The history of BEE attempts at media ownership goes back to that empowerment pioneer Nthato Motlana.

Among the first things that Motlana, founder of New Africa Investments (Nail), did in his quest to make his mark in business was to buy a stake in the Sowetan newspaper. That became part of Nail, the engine of which was the cash-generating assurance company Metropolitan Life.

Somehow Nail didn’t really know what to do with the Sowetan and for some time it seemed to be left to its own devices. Then it was decided to take the Sowetan upmarket, just when the paper was facing vigorous new competition from the Daily Sun. Well-intentioned though it was, this upmarket move proved another disaster. It was reversed when the then-Johncom took over the newspaper.

Avusa is looking for an empowerment partner and so should be open to helping a buyer get a substantial stake. Avusa needs to boost its black ownership to re-establish its empowerment credentials, though in other areas such as employment equity it is, I understand, quite advanced.

Avusa comes out of one of the big pioneering and symbolic BEE deals: the sale of Johnnic to a broad-based consortium headed by Cyril Rama­phosa. Nail was also involved, another example of its intention to enter the media space.

That deal created over time a telecommunications company, MTN, and media company Johncom. Both got their empowerment status because the holding company, Johnnic, was supposedly owned by the broad-based National Empowerment Consortium, though this dwindled to insignificance over time, showing that broad-based ownership, if not sustainable, is not worth much.

The questions raised by the BEE experience of owning newspapers are: How does ownership of media matter? And what is the difference between ownership and control, in media specifically? This is an area of research that I firmly believe the Centre for Economics Journalism in Africa, of which I am now director, needs to undertake in the years ahead.

Johncom has had BEE control through a stake that granted significant influence rather than ownership. For some reason it has not done as well as Naspers, one of the other three big media groups that came out of the newspaper industry the country inherited in 1994. The others are Independent Newspapers (formerly the Argus Group) and Caxton.

Naspers is apparently management controlled, courtesy of a structure of ownership that guarantees independence. It has become a multinational media group. With a market capitalisation — the value of all its shares trading on the JSE — of R66-billion, it far outweighs the largely domestically focused Avusa, with a present market cap of just less than R10-billion.

Caxton, known mainly for its free suburban newspapers, is controlled by the Coburn-Moolman partnership and apparently white-owned. Here even the notion of white ownership is open to debate, since large groups tend to be owned by institutions on behalf of pension funds and other investment vehicles, not all of whose beneficiaries are white.

The only company that is arguably all white-owned, because it is all foreign-owned, is Independent Newspapers. Independent Newspapers is no longer listed separately, so what its market cap would be is unknown, but it continues to be an important profit source for holding company Independent News Media (INM), contributing 17% of total operating profit in the year to end December last year.

To argue, as former government spokesperson Onkgopotse JJ Tabane has, that the critics of the Koni Media bid are racially opposed to black empowerment is absurd. If partial or even total black ownership is the aim, then why not target Independent Newspapers or Caxton?

To qualify for procurement, including government ad spend, a company should have a verifiable BEE rating in terms of the broad-based BEE scorecard. This is a more important requirement than not irritating the Presidency. Does Independent Newspapers have such a rating? You wouldn’t say so from the parent company’s 2006 annual report. It does not mention empowerment once. Neither does the Caxton 2006 annual report.

Yet Avusa is in play so it is a target. Any politically motivated bidders should note, however, that Tony O’Reilly’s INM did not squeeze a 32% rise in operating profit out of its South African subsidiary through commitment to ubuntu. O’Reilly’s favourite word in last year’s annual report was ”relentless”, applied to reducing costs.

Newspapers remain businesses, whatever their role in the dissemination of ideas. In the fiercely competitive South African newspaper market, politically motivated owners who interfere in the running of their papers will need deep pockets. Let the BEE buyer beware.