A very slow last waltz

But me­dia group de­nies de­lay­ing tac­tics

Finweek English Edition - - COMPANIES & MARKETS - SHAUN HAR­RIS shaunhar­ris@ya­hoo.com

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.


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