Big noise for a small radio
But there’s more at stake
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.