/ 27 August 2010

Caxton, Naspers go another round


South Africa’s top two listed media companies, Naspers and Caxton, went head to head this week.

The battle, which took place before the complaints and compliance committee of the Independent Communications Authority of South Africa (Icasa), has been going on since 2007, when Caxton objected to Naspers’s broadcasting company, Multichoice, being awarded a subscription broadcasting licence.

In August 2007, Caxton and CTP Publishers and Printers filed a complaint urging Icasa to investigate and adjudicate whether MultiChoice and M-Net had contravened the Electronic Communications Act (ECA).

Caxton argued that MultiChoice and M-Net had contravened section 64 of the Act, which deals with foreign ownership quotas for commercial broadcasters, arguing that their foreign ownership exceeded the 20% limit as set out in the Act.

Caxton also argued that Multi-Choice and M-Net had contravened section 65 of the Act by being in control of more than one commercial broadcasting licence, and section 66 of the Act through Naspers’s ownership of newspapers and commercial broadcasters.

In March 2008, Caxton applied to the Pretoria (now North Gauteng) High Court to get MultiChoice’s broadcasting licence set aside. In July 2009, the court ruled against Caxton and also refused it leave to appeal, but it did rule that Icasa should complete an investigation into the complaint. Caxton applied to the Supreme Court of Appeal for leave to appeal, but the application was dismissed.

Caxton also attempted to take the case to the Competition Tribunal, again without success. It has been suggested that Caxton is pursuing the complaint as part of its commercial rivalry with Naspers. Following the court ruling in July 2009, Icasa was forced to look into Caxton’s complaint, which resulted in the hearing that took place this week.

Caxton’s main argument regarding the alleged contravention of foreign ownership rules revolves around Naspers’s shareholding structure. Naspers has two classes of shares, A-class shares, of which there are more than 71 000, and N-class shares, of which there are more than 366-million.

The A-class and N-class shares have different voting rights. The A-class shares are worth 1 000 votes and the N-class shares worth one vote. Naspers argues that this means that 63.7% of its voting rights are held by A-class shareholders, who are South African citizens.

It argues that the remaining 36.3% of voting rights are held by N-class shareholders and so, even if 50.39% of these shares were held by non-South African residents, which they claim is the case, it would still equate to only 18.29% of Naspers being held by non-South African residents.

Naspers argues further that just because these shareholders do not live in South Africa, it doesn’t mean that they’re foreigners. “No single foreign shareholder holds 20% of the shares in Naspers,” says MultiChoice’s heads of argument. “Nor is there any indication of any agreement to cooperate between foreign shareholders, which might lead, directly or indirectly, to foreign control.”

Caxton’s advocate, Shem Symon, argued at the Icasa hearing that if these shareholders did not live in South Africa, they should be defined as foreigners, that the ECA did not speak to voting rights but rather to shareholding, and that the A-class and N-class shares were being used to fudge the real foreign ownership of Naspers.

Symon argued that the A and N shares led to a distortion of the truth as it made Naspers appear to have a paid-up share capital of only R21-million, when in fact it had raised R13.69-billion in share capital. He argued that Naspers had a market capitalisation of R118-billion and there was no way that a paid-up share capital of R21-million was an accurate reflection of Naspers’s shareholding.

Caxton is the second-biggest listed media company in South Africa, with a market capitalisation of R6.4-billion. It is unclear why Caxton has been pursuing this case with its associated hefty legal bills, as it does not appear to have aspirations to enter the subscriptions-broadcast market.

The parties approached for comment at the Icasa hearing did not want to talk about Caxton’s motivation, however. Icasa’s complaints and compliance committee is expected to rule on the matter within 90 days.