What’s in, what’s out?

Seems lu­cra­tive broad­cast­ing as­sets won’t be com­ing back to mar­ket

Finweek English Edition - - Companies & markets - BELINDA AN­DER­SON

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

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