/ 15 June 2012

Shake-up for newspaper groups

In a politically pressured environment for print media
Publications have cut salaries and frozen posts in a bid to survive the disease, but most owners failed to take appropriate steps when problems emerged in the late 1990s.

Ownership of one of South Africa’s big-four print groups is changing at a time when the landscape of the ­commercial print news media, under political pressure, looks about to shift.

The fear – hotly brushed off – is that political interference may follow the change in the ownership structure of the Avusa news media group, the publisher of the influential Sunday Times, The Times and Sunday World, and a 50-50 partner with the United Kingdom’s Pearson group in the ownership of the Financial Mail and Business Day.

The change accompanies renewed rumours of the sale of another big print media group and pressure is building for the industry as a whole to have more black ownership.
Parliamentary hearings next week will focus on black ownership – or the lack of it – in the newspaper industry.

Avusa is owned by a number of shareholders, with the Tokyo Sexwale-funded Mvela Group having a stake of about 21% through Mvela subsidiary Richtrau.

An announcement was made this week that the Mvela group, through Richtrau, was offering to buy all the shares now held by other investors at R24 a share, a premium to the share price, to add to shares Richtrau already owns.

Tighter control
The offer is in shares and cash, and it is envisaged that most shareholders will swap their Avusa shares for Richtrau shares. Richtrau will then be listed and the name changed.

The net effect will be tighter control by the Mvela/Blackstar group as it moves, it says, to make the company more efficient, starting with head office. There are two ways of seeing this tighter control. One is that it is necessary to diminish the acrimony between management and shareholders, and ensure that Avusa delivers greater profit through more efficient management.

The other is that it in some way means political control can be exerted through the appointment of editors friendly to one or other ­political faction.

Andrew Bonamour, the interim chief executive of Mvela and the director of investment group Blackstar, which is promoting the buy-out, insists that the deal is entirely commercially driven. He dismissed the idea that Sexwale, who has been touted as a presidential contender, would use the change to exert political control over Avusa.

Bonamour pointed out that Sexwale’s Mvelaphanda Holdings would control 7% of the new Avusa. However, Blackstar would hold another 10%. Professor Jane Duncan, Rhodes University Highway Africa chair of media and information society, pointed out that control was exercised by choosing board ­members, not through interference in day-to-day operations.

Bonamour said that present investors were happy with the deal, the evidence for which was that 80% of them were taking shares and only 20% were opting for cash.

Both Cyril Ramaphosa, an ANC insider and the head of black economic empowerment company Shanduka, and Iqbal Surve, the chief executive of black economic empowerment company Sekunjalo, have been mentioned as possible buyers of Independent News & Media South Africa from Irish firm Independent News & Media plc. Independent publishes The Star and a number of other newspaper titles.

Surve told the Mail & Guardian the rumour that he had gone to Dublin to negotiate a deal was false, but he did not rule out any interest in news media. The rumour appears to have originated from a change in shareholder control at the Irish holding company, where chief executive Gavin O’Reilly and other directors were recently ousted by disgruntled shareholders. Gavin O’Reilly is the son of Tony O’Reilly, who made the investment in South Africa in the early 1990s that resulted in control of what was then the Argus group moving to Ireland.

According to the Bloomberg news agency, the largest shareholder of Independent News and Media plc, Denis O’Brien, the man who has had a long-running battle with the O’Reillys for control of the company, believes the media company should sell its South African interests and invest the proceeds in its Australian and Asian businesses.

However, rumours about the sale of the South African operations of the Independent group to black economic empowerment interests have proved unfounded before, with nothing coming of a supposed bid by Moeletsi Mbeki, the brother of the former South African president.

Momentarily blunted
Yet the political environment has become much more difficult for South African print media. ANC hostility to the print media may have been momentarily blunted by proposed changes to South Africa’s system of non-statutory regulation, but lack of racial transformation was highlighted in the same ANC document that proposed a media appeals tribunal to regulate the press.

Duncan said the consolidated level of black economic empowerment ownership in the newspaper industry was only 11%, far below the minimum targets of government’s generic empowerment score cards.

Of the four big groups that dominate the news media, Avusa now has a high black economic empowerment score of about 50%, and the Naspers-controlled Media24 has black ownership of 15%. Caxton, the publisher of The Citizen, magazines and suburban freesheets, has none, and Independent News and Media South Africa is wholly foreign-owned.

Bonamour said that, following the Avusa deal, Richtrau would have an estimated 30% black economic empowerment component, less than it had now, but still substantial. He emphasised, however, that Blackstar, though it was familiar with black economic empowerment through its other transactions, was focusing on being a catalyst for positive change at Avusa. Jobs would not be cut, but costs could be, starting with a head office that costs R50-million a year and a board that now costs R10-million a year. Bonamour also mentioned aspects such as centralising logistics and other co-operation between the various elements of the company to bring down costs.

A long way to go
Challenges regarding media diversity will arise if newspaper titles or groups come up for sale. Bonamour, whose perspective is resolutely commercial, talked of possible consolidation in the industry if the Independent decided to withdraw from South African and mentioned that the new Avusa might want to buy new titles.

South Africa’s newspaper industry has a long way to go, said Bonamour, mentioning that the “sage of Omaha” – Warren Buffet – once a sceptic about print’s future, had begun to buy newspapers.

However, the traditional daily newspaper market has been losing circulation and is acknowledged to be crowded in Gauteng.

Commercial pressure for more consolidation will inevitably clash with political considerations, as newspaper groups adapt to calls for change in ownership by closing or selling titles. Thrown into the mix may be new opportunities to diversify into broadcasting as the digital transmission of TV signals means the availability of many more channels. For now, the one to watch is the South African arm of the Independent.

Reg Rumney is the director of  the Centre for Economics Journalism in Africa