Will Clicks hear a perfect pitch?
Modise-led consortium possible bidder for off-song retailer
MUSICA – South Africa’s largest retailer of music and related entertainment merchandise owned by the sprawling healthcare group Clicks – may soon find a buyer. Finweek has learned from reliable sources that a consortium led by Ken Modise – former director of liquidated music distributor Music for Pleasure – has been courting Clicks management for a possible deal and that informal “discussions are at a sensitive stage”.
If pitched, the bid is likely to appease analysts, who have for some time been raising concerns that Musica could distract Clicks from its ambition to build a network of 500 healthcare retail outlets over the next three to five years and to optimise its pharmacy wholesale business UPD.
Musica is a chain of 152 outlets, claiming a 45% market share of SA’s CD industry, 23% in DVD and 9% in gaming software. However, it’s troubled – like its competitors – by pirates and the downloading of music and movies from the Internet. Musica has battled to grow its turnover over the past few years, with analysts often describing it as “a problem child” that Clicks should get rid off and focus on healthcare.
However, group CEO David Kneale says Musica is a cash-generative business and the group would only dispose of it if it received a compelling offer. However, he’s admitted Clicks has become a healthcare business and that its long-term plans don’t include Musica.
Sources close to Modise say he believes Musica could unlock value if it were to be unbundled from Clicks, whose primary focus is healthcare retail. Modise has vast experience in the music and media industry and was at one stage CEO of the State Information Technology Agency (Sita) before drifting back to business.
Abri du Plessis, chief investment officer at Cape Town-based Gryphon Asset Management, says music retail is a dying industry and Clicks should sell Musica and channel its resources to where it matters most: healthcare retail. In attempts to remain in business, Musica has over the past few years tried to diversify its offering, but sales remain weak.
Du Plessis says potential buyers for Musica may be only looking at acquiring sites, with plans to convert those into something else. “Selling CDs is going to become a niche market in future,” he says, adding Musica’s competitors – such as Reliable Music Warehouse – didn’t survive the decline and had to disappear from the scenes. He says new entrants in the SA retail market, such as European fashion giant Zara, would do well to make an offer for some strategic Musica outlets and convert them into its own clothing stores.
In 2009, Clicks attempted to sell 17 Musica outlets to cellphone network operator MTN for around R15m but the deal was eventually scrapped, apparently because less than 50% of the landlords on whose consent the transaction hinged approved leases being assigned to MTN, which wanted to convert the outlets into its own cellphone stores.
Another possible buyer could be Edcon in shopping centres where it doesn’t have subsidiary CNA stores and then to convert these into CNA outlets. A management buyout is also a possibility. Other than that, Clicks may have to put the business out to tender and sell Musica stores individually before much of their value has been eroded.
But price might be an issue. Du Plessis says besides the sites, Musica as a brand isn’t worth much. However, Clicks may dispute that. In its 2010 financial year, Musica turned R952m and deposited R52,4m in profit before tax.