Big noise for a small ra­dio

But there’s more at stake

Finweek English Edition - - Companies & markets - SHAUN HAR­RIS

THE PAY-OFF LINE FOR KAYA FM, the ra­dio sta­tion broad­cast­ing to roughly 1m lis­ten­ers in the Gaut­eng re­gion, is “The heart and soul of Jozi”. But it’s be­com­ing more like a pro­longed bat­tle for the hearts and minds of the Com­pe­ti­tion Tri­bunal as Pri­me­dia and African Me­dia En­ter­tain­ment (AME) refuse to let go of the chance to own a stake in the busi­ness.

It’s a rel­a­tively small ra­dio sta­tion, so the in­tense in­ter­est shown by Pri­me­dia and AME says a lot about the value of broad­cast­ing as­sets. Per­haps even more about the po­ten­tial of a small as­set to be­come a huge cash cow with the right re­sources be­hind it.

Pri­me­dia is pre­pared to pay about R20m for just un­der a quar­ter of Kaya FM, small change in its book. But it has pur­sued the stake through the Com­pe­ti­tion Com­mis­sion, which op­posed the ac­qui­si­tion, to the Tri­bunal that sanc­tioned it, and now has to await a call for a re­view of the de­ci­sion by AME.

That could leave the fi­nal out­come up in the air for months, prob­a­bly way be­yond Pri­me­dia’s plans, though a firm of­fer still has to be tabled, for a private eq­uity buy-out and delist­ing of the me­dia group.

There could also be broader is­sues at stake here. As in what ex­actly con­sti­tutes con­trol of a re­gional ra­dio mar­ket, the ge­o­graphic area cov­ered by the ra­dio waves, or the au­di­ence that lis­tens to the sta­tion and its ad­ver­tis­ers.

And would a fi­nal rul­ing against Pri­me­dia ef­fec­tively put a span­ner in the works of fu­ture me­dia con­sol­i­da­tion, or would it rep­re­sent an op­por­tu­nity to bring more di­verse in­ter­ests into the broad­cast me­dia and in­crease com­pe­ti­tion?

Then again, it could just be a mighty clash of egos over a small ra­dio sta­tion. Pri­me­dia CEO William Kirsh has built a suc­cess­ful ac­qui­si­tion record in South Africa and runs two of the top ra­dio broad­cast­ers, High­veld Stereo and 702 Talk Ra­dio. He wants Kaya FM and has pur­sued a stake ever since New Africa In­vest­ments (Nail) be­gan to wind-up. over. It’s small now, but could grow re­ally big”.

He also feels there are more im­por­tant prin­ci­ples for the me­dia in­dus­try that could be set. If the Tri­bunal fi­nally al­lows Pri­me­dia to go ahead with the ac­qui­si­tion, Ar­mitage

But though not of­fi­cially rep­re­sent­ing AME, Cax­ton CEO Terry Mool­man is clearly in the back­ground. Cax­ton holds a di­rect stake of nearly 8% in AME, but the Mool­man and Coburn Part­ner­ship holds 15,7% and Frances El­iz­a­beth Coburn 13,1%. Mool­man is used to get­ting what he wants, as John­nic Com­mu­ni­ca­tions will prob­a­bly find out.

And while Kaya FM would be small in Pri­me­dia’s port­fo­lio, it would be ge­o­graph­i­cally im­por­tant to AME, as it has no broad­cast in­ter­ests in Gaut­eng. It would fit in well with Al­goa FM and OFM, prob­a­bly the dom­i­nant adult con­tem­po­rary ra­dio sta­tions in the East­ern Cape and cen­tral parts of the coun­try re­spec­tively.

Peter Ar­mitage, fund man­ager at In­vestec Private Clients, sees Kaya FM as a strate­gic

as­set “that’s worth fight­ing ex­pects more cor­po­rate ac­tiv­ity to fol­low.

Or a dearth of me­dia deals, as we have ar­gued be­fore, if the rul­ing goes against Pri­me­dia and es­tab­lishes a nar­row def­i­ni­tion of what con­sti­tutes a me­dia mar­ket and con­trol of that mar­ket ( Fin­week, 23 Novem­ber 2006).

But just on the pro­posal to buy out all the shares in Pri­me­dia for R6bn by a con­sor­tium led by long-stand­ing em­pow­er­ment part­ner, the Minework­ers In­vest­ment Com­pany and Issie and William Kirsh, it seems clear the broad­cast as­sets won’t come back to the mar­ket, at least for some time. De­tails on the pro­posed deal still need to be an­nounced, but while the plan is to delist Pri­me­dia and then relist some of the as­sets, th­ese are un­likely to in­clude High­veld Stereo, 702 Talk Ra­dio and Kaya FM if that deal is fi­nally sanc­tioned.

The two largest in­sti­tu­tional share­hold­ers in Pri­me­dia, Old Mu­tual In­vest­ment Group SA and Coro­na­tion Fund Man­agers, who to­gether hold 66,3% of the or­di­nary shares and 35,8% of the N shares, have un­der­taken to vote in favour of the deal (or ad­vise their clients to vote in favour).

Ar­mitage says he has ad­vised his clients sim­i­larly. “We shouldn’t be neg­a­tive about private eq­uity deals. It’s part of a cy­cle, and one day those as­sets could be re-listed.”

Ad­mit­tedly that’s the way private eq­uity trans­ac­tions tend to play out in the longer term.

But with so much value be­ing placed on broad­cast as­sets, not just fi­nan­cially but strate­gi­cally too, this seems a good time for in­sti­tu­tional mi­nori­ties to ar­gue for some mech­a­nism to let clients re­tain an in­ter­est in the un­listed ra­dio sta­tions. No mat­ter how good the of­fer, it just doesn’t seem worth cut­ting the line to broad­cast as­sets that work off gen­er­ous op­er­at­ing mar­gins and pump out cash.

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