A very slow last waltz
But media group denies delaying tactics
THE SO-CALLED UNSOLICITED offer to buy out media group Avusa is fast approaching the theatre of the absurd. It’s not even a will we, won’t we accept the offer. It’s now about a due diligence agreement before the Capitau-led private equity consortium can conduct a due diligence. At this rate shareholders are more likely to see Godot before any firm offer is tabled. And it doesn’t seem to be Capitau’s fault.
Absurdity one is that Avusa CE Prakash Desai and the board seem very reluctant to be subjected to a due diligence. Of course, Desai denies that and says Avusa isn’t holding up the deal. But whether intentional or not, it is. The last Sens announcement makes for absurd reading. Things such as the agreement prior to a due diligence is currently being concluded (that was on 27 June). And that should an offer be made, the board hasn’t decided whether it would be in the best interests of shareholders. Before the offer is made? It’s starting to resemble that protracted Kansai Paint/Freeworld Coatings deal.
Absurdity two is why Capitau doesn’t just go ahead and conduct its own due diligence. Avusa recently posted full year (and pretty good) financial results. The Capitau guys aren’t stupid and can examine all Avusa’s financials and various Sens announcements. Of course, it helps if management is prepared to talk. But if Capitau can’t get an inside track it can still conduct a due diligence, just as many companies do when making an “unsolicited expression of interest”.
The agreement on the process prior to a due diligence makes it sound quite limiting. Avusa wants to dictate terms, such as “the nature, conduct, time and scope of the due diligence”. That looks like it wants to tell Capitau how to conduct the due diligence it wants. Due diligence examinations aren’t meant to work that way.
Finweek tried to contact Desai, but his office was on voice mail and the call wasn’t returned. Anyway, Avusa is under a cautionary, so Desai would probably have declined to comment. That’s the great misconception about cautionaries: they only preclude management from comments that could affect the share price. Instead, cautionaries are used as a blanket.
But Desai was earlier quoted as saying Avusa had a “consolidated due diligence business presentation”. So why doesn’t it just hand it over to Capitau and answer any questions it may have? Deny it as much as he likes, but the pre-due diligence agreement looks increasingly like a delaying tactic.
And here’s where Capitau could walk into some huge expenses. Avusa and Independent News & Media were earlier bemoaning being tapped in the joint venture printing company, largely set up by Finweek columnist Stephen Mulholland when he headed what was then Times Media. And even back then – in the first half of the Eighties, when this writer worked for the Sunday Times – the presses were old. It wasn’t really a joke they were held together with sticky tape. Press room fires were pretty frequent.
The joint venture must have improved or at least maintained the presses, but they’re very old. Desai told analysts Avusa wanted its own presses in Johannesburg, with an amount of R153m being mentioned. It’s a price tag Capitau might have to pick up.
While shareholders and many other interested parties – apparently including other potential suitors in the wings – wait for the “process” to be completed, what offer is Capitau likely to make? Probably around 2500c/share, the highest Avusa’s price has been over the past year and longer. If so, that would be a good offer – sad as it might be to see another media group delist.