What’s in, what’s out?
Seems lucrative broadcasting assets won’t be coming back to market
IT SEEMS THAT INVESTORS who might have been hoping to see lucrative radio assets such as 94.7 Highveld Stereo spun off into a new listed entity – after Primedia goes private in its R6bn private equity-funded deal – may be disappointed.
Primedia CEO William Kirsh, who’s part of the consortium buying out the company, says (without being too specific) there were certain businesses in the group that were in a growth cycle and required more capital to expand. Those would be the ones targeted for relisting.
Meanwhile, those businesses that’ll help the management buyout parties and private equity players pay down the debt more quickly will be taken private. Kirsh says though the broadcasting businesses remained in a growth phase, they didn’t require further capital to grow.
He says that it hadn’t given more detail on which operations would be included in the most recent announcement, because it was still reviewing the various opportunities before making a final decision. However, both transactions would occur around the same time.
The offer – of R25,50 per ordinary share and R24,50 for the N shares (less any dividend declared between now and then) – didn’t constitute a final offer and was still subject to a detailed due diligence by the funders.
Kirsh says he’ll be involved in both companies, as the intention was for the new company to have an “umbilical cord” to Primedia. The consortium includes Kirsh, his father Issie and the Mineworkers’ Investment Company (MIC), which together with the Kirsh family has long controlled the group through a voting pool arrangement utilising the low-voting N shares.
Though Kirsh wouldn’t be drawn on how many shares he or the other consortium members would own after the deal had been concluded, he did say that MIC would have a significantly bigger stake in Primedia. MIC estimates that will be between 35% and 40%. And, for the first time, the broader management team would also own a stake.
Brait was thought to be the private equity funder behind the deal, but Kirsh says this isn’t the case. Instead, international private equity players are involved. However, it had not excluded the possibility of raising some of the money in SA, as there had also been significant local interest in the deal, Kirsh says.
A first private equity suitor approached it in October last year, says Kirsh, but the consortium didn’t pursue that particular opportunity. This one came up in November.
Large shareholders Old Mutual and Coronation gave their irrevocable support for the transaction – as long as another higher offer doesn’t come along (which the consortium would then be able to match or better). In the case of Old Mutual the offer must be at least 80c higher than the offer on the table for each of the ordinary and N shares. Kirsh says there are no other potential suitors that he knows of at this stage.
Together with the consortium, these institutions represent shareholders with 66,3% of the ordinary shares and 35,8% of the N shares. Kirsh says it had only approached major institutions.
Meanwhile, value investors Allan Gray – which used to be a very significant shareholder on behalf of its clients, but is no longer – described the transaction as a “good” one for shareholders to accept.
Allan Gray fund manager Abdul David says it had started lightening its holding some time back, given that it had considered the valuation to be quite full after the run-up from below R4 a few years ago. It considered the advertising cycle to be “quite toppish” and didn’t know if the earnings momentum could be maintained.
However, both management and the private equity players must have considerable confidence that they could still achieve good returns, says David.
Kirsh says that while the growth rates in the advertising market had slowed, the growth was by no means unimpressive. David says the price on the table was possibly a little higher than the market had been expecting.
Primedia first issued a cautionary announcement in mid-December concerning the deal. The company said the possible offer represented a 38,1% premium to the 30-day volume-weighted average price of the ordinary shares and a 30,9% premium to the price of the N shares ahead of that first cautionary.
Kirsh says the decision to conduct a management buyout was based on two factors. First, because of where Primedia was in its lifecycle. Kirsh says the company had grown organically and by acquisition, but there were no more major acquisitions left in its sector. That made the business a lot more mature than it was two or three years ago.
Second, because of the opportunity created by the capital markets. There was so much liquidity around but no guarantee that that would be the case for some time, he says.
Taking advantage of liquidity in the capital markets. William Kirsh