An ingeniously done deal
Desai acts quickly to unbundle and separately list Johncom’s directly held assets
JOHNNIC Communication’s new CEO, Prakash Desai, has wasted no time in moving to address the company’s twin problems of inadequate black empowerment ownership and the share price’s failure to recognise true underlying value with an ingenious scheme to unbundled and list separately its directly held operating media and entertainment assets.
That will make it much easier to introduce an empowerment partner into the operating assets.
Backing Johncom’s current market cap of R9,45bn, a 37,8% stake in Caxton & CTP Printers is worth around R3,11bn. The other big asset is 38,6% of M-Net/SuperSport, which it’s selling to Naspers. That deal was valued at R3,15bn when the Naspers N price was at R138,60/share; it’s now at R181/share, adding another R885m to the value for a total of R4,03bn.
That means Johncom’s passive investments have a market value of around R7,15bn, leaving the operating businesses – which included R611m cash at September 30 – at a notional R2,3bn.
The existing Johncom will then hold only the minority stake in Caxton, which will thus fail to comply with the JSE listing regulations. The JSE has given Johncom 12 months to remedy that situation. Johncom says it will consider “various options” to achieve that.
The most obvious would simply be to also unbundle this holding and wind up the company; but no doubt Johncom’s corporate advisers – to say nothing of Caxton’s inventive CEO Terry Moolman – will try to come up with something a little more creative.
The other question is what Johncom’s operating interests are worth on their own. They appear to have returned an operating profit of around R260m in the year to March 2006, before exceptional items and share-based payments, which on the basis of the recent interim should increase by at least a third in financial year 2007 – perhaps more.
There will again be large, share-based payment charges when the unbundlings trigger a slew of share options, but the notional residual value of R2,3bn mentioned earlier should at most be only just over 10 times normal earnings.
Which suggests that, when all the details are available to the market and my back-ofenvelope sums can be substantiated by authoritative figures, there could still be room for a further appreciation in the group’s market valuation. > A LOAD OF OLD . . . PROBLEMS in the production process led to a couple of errors creeping into last week’s column. If you think I don’t know that SA’s chutney queen spelt her name in the singular, and that a certain cut-price hotel chain has no verbal association with motor racing, please refer to our Afrikaans edition, where, ironically, my original spelling is correctly reproduced.