What's black and white and in the red all over?
The Public Investment Corporation (PIC) risked state pensioners’ cash to help to buy Independent newspapers last year, whereas other investors rejected the deal as overpriced and potentially toxic.
Now Independent is buckling under the weight of its huge debt, falling revenue, retrenchments and plunging staff morale (See “Grim picture of declining revenues (and morale)” below).
Despite this, the PIC has not taken up seats on the Independent board to safeguard the huge investment – estimated at R1.4-billion – it made a year ago.
The corporation, which invests Government Employees’ Pension Fund money, has imposed a news blackout on the issue.
The chief investment officer, Dan Matjila, told the Mail & Guardian at the end of July: “We will make no further comment on this investment.”
Independent has also rebuffed several attempts by the M&G to raise issues with the group.
Independent is controlled almost single-handedly by Cape businessperson Dr Iqbal Survé, assisted by a board dominated by his family.
The PIC appears to have left Survé to his own devices, despite its massive investment and contrary to its policy of shareholder activism and strict standards of corporate governance.
PIC foots the bill
A consortium led by Survé bought Independent Media from its Irish owners for R2-billion in mid-2013, and two state-owned Chinese companies took a 20% share, worth about R400-million.
The PIC took a 25% stake, worth about R500-million, but less well known is that a PIC loan funded most of the other 55%, housed in Survé’s Sekunjalo Independent Media (SIM) consortium.
Approving the terms of the deal, the Competition Commission assumed the PIC would have board representation and stipulated the corporation should “not appoint any common directors” with the Times Media Group, in which the PIC has a smaller shareholding.
Survé, who criticised the previous owners for running Independent “like a spaza shop”, is the lone director of SIM.
He exercises sole control of 55% of Independent, despite the fact his personal stake in the SIM consortium appears to be quite small.
On the main Independent board, of which Survé is the executive chairperson, are his 21-year-old daughter, his two sisters, his brother-in-law and his two company secretaries.
Little to no investor representation
Survé’s empowerment partners, on the other hand, do not appear to be very empowered.
The Sactwu Investment Group, the investment arm of the South African Clothing and Textile Workers (Sactwu), put up R150-million, according to a well-placed source, but has also not taken up the board seat to which it is entitled.
The Sactwu general secretary, André Kriel, refused to comment.
It is understood that other black economic empowerment shareholders and minority investors in the consortium did not put up any capital. Instead their portions were to be paid for through future dividends.
But one prominent shareholder, who declined to be named, told the M&G last month that no formal agreement had been signed, and there had not been any further communication with shareholders about the status of the investment.
The only investment partners on the Independent board are two Chinese directors, representing China International Television Corporation and the China Africa Development (CAD) Fund.
The involvement of the CAD Fund is perhaps surprising as it was part of a different consortium that walked away from the deal in December 2012.
A letter in the possession of amaBhungane lists concerns that led a competing consortium to decide not to invest.
It is signed on behalf of Guma Capital, owned by a prominent businessperson, Robert Gumede, and separately on behalf of the CAD Fund.
The parties cite concerns about the financial health of Independent, including:
- Minimal tangible assets such as buildings and printing presses as “most of the assets have been disposed of … leaving the balance sheet bare”;
- A “substantial” R257-million unfunded exposure, believed to be related to a medical aid liability; and
- A potential tax liability of R140.9-million.
The letter makes it all the more surprising that the CAD Fund later emerged as an investor alongside Sekunjalo.
The CAD Fund country director, Lu Zhengyi, declined to answer questions, including whether the fund came under pressure to revise its position following the Brics (Brazil, Russia, India, China and South Africa) summit in South Africa in March last year.
The letter supports suggestions that two other consortiums that knew the company well – one led by former Sunday Independent editor Shaun Johnson and another led by former Independent manager Nazeem Howa – had bid significantly less than Survé.
In a recent interview, Survé boasted he knew “exactly what I am buying and paying for”, but in staff forums he has complained of finding “voodoo economics” and “black boxes” in the company accounts.
Both the PIC’s lack of interest and the CAD Fund’s unexplained about-face suggest Survé was able to raise R2-billion because of political rather than financial calculations.
Now he may also be counting on political support to get him out of the financial burden of buying at a premium: Survé has set up a new public-sector division and told staff of plans to launch a national Sunday title to capture government advertising.
The director of journalism at the University of the Witwatersrand, Anton Harber, said Survé has talked about reinvesting in the company “but all the evidence is that he’s cutting more than ever”. –Additional reporting by Stefaans Brümmer, Lynley Donnelly and Lisa Steyn.
Grim picture of declining Indy revenues (and morale)
Employees of Independent newspapers are paying a high price for Iqbal Survé’s costly purchase of a troubled company in a declining industry.
Cape Argus editor Jermaine Craig told a staff meeting this month in Survé’s presence: “I have never been in a company where the spirit is as low as it is at the moment.”
Morale has deteriorated as Independent has appeared to lurch from one crisis to the next, despite Survé’s laudable intent to introduce “scientific decision-making” to a company that suffered years of neglect and profit-taking by its former Irish masters.
According to several company sources, Survé’s takeover has coincided with a 60% drop in projected revenue, leading to a scramble to find money to service loans raised to purchase the company.
Among the titles said to be losing money are the Cape Argus, the Daily Voice, the Star, the Saturday Star, the Sunday Independent and the Daily News.
The Gauteng operation is alleged to be in the red for the first time ever.
Keeping things afloat is the successful seven-day isiZulu-language Isolezwe, which Survé plans to expand to Gauteng.
Retrenchments in the pipeline
The company has repeatedly dodged questions about its loan commitments but Survé’s consortium is thought to have borrowed as much as R1-billion, suggesting he needs to repay between R100-million and R200-million a year.
In a bid to raise cash, Survé has announced plans for retrenchments, is negotiating to sell and lease back his KwaZulu-Natal building and is alleged to have offered Chinese shareholders a bigger stake.
Worse still, staff speak of decisions driven by panic, of paralysing micromanagement by Survé’s office and of a lack of the editorial understanding needed to turn the company around.
Insiders describe the planned break-up of the centralised production hub, in a bid to cut sub-editing expenses by 40%, as “not implementable”.
One said: “Iqbal keeps saying we have got to start leveraging the advantages that we have in operating like a group … and then one of the first really big decisions he makes is to dismantle the only national department that’s ever worked in editorial.”
Senior staff leave in droves
On top of that has been a persistent culture clash that has seen a stream of dismissals of or departures by senior staff.
It began with Survé’s conflict with the sacked Cape Times editor Alide Dasnois over her decision to wrap coverage of Nelson Mandela’s death around a critical front-page report on one of Survé’s other companies.
It continued last week with the suspension of the respected Business Report deputy editor Peter de Ionno.
Three black editors – Makhudu Sefara, Moshoeshoe Monare and Philani Mgwaba – have also jumped ship.
But there have been expensive add-ons, such as the group executive editor Karima Brown, who is widely seen as an editorial commissar.
For example, in an email to editors this week, she demanded to know why news of Survé’s bid to buy the South African Press Association had been downplayed.
She instructed them: “Can I please be made to understand why each title used the story the way they did.”
One senior insider said talk in the corridors was that the company was overpriced: “It was known to be a lemon.
“But it was a platform for political influence. Still, for that platform to function, you need news products and for that you need intellectual capital and institutional memory, and the company is losing these.” – Sam Sole & Craig McKune
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The M&G Centre for Investigative Journalism (amaBhungane) produced this story. All views are ours. See www.amabhungane.co.za for our stories, activities and funding sources.