An in­ge­niously done deal

De­sai acts quickly to un­bun­dle and sep­a­rately list John­com’s di­rectly held as­sets

Finweek English Edition - - Companies & markets - BY MICHAEL COUL­SON

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.

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