An inexplicable call by the PIC

ON THE available evidence, it is impossible to conclude that a decision this week by the Public Investment Corporation (PIC) not to support a deal to change control of Avusa, one of the country’s biggest media groups, is anything other than political. Commercially, the decision makes no sense at all.

The PIC believes it holds about 17% of Avusa, which would give it the clout to stop, or severely disrupt, a proposal to take Avusa private and to turn it around.

That proposal is the brainchild of two of Avusa’s three big shareholders, Times Media Group (an Mvelaphanda Group offshoot formerly called Richtrau) and Universal Hirt & Carter (UHC), a Durban printing business bought a few years ago by Avusa for a mixture of cash and Avusa shares. The PIC is the third.

In a proposal that reflects the private equity roots of Andrew Bonamour, founder of Blackstar and CEO of Mvelaphanda, he and almost all other shareholders propose to delist Avusa, publisher of the Sunday Times, from the JSE, inject R650m of debt into it and to use the cash it raises to return Avusa to levels of efficiency it has long since lost sight of. In every respect, their proposal is commercial, driven by profit-hungry, capitalist entrepreneurs willing to take big financial risks to back their hunch.

The PIC doesn’t see it that way, however. In response to questions from Business Day this week, in which it praises the proposal as “very sound”, it nevertheless raises four objections to the deal. First, it argues that since both Mr Bonamour and Colin Cary (one of the founders of UHC and executive chairman-designate of Avusa) are already associated with Avusa (the former on the board and the latter as MD of UHC), they are already well placed to manage its future.

Second, it argues that, between them, shareholders Blackstar (Mr Bonamour), UHC (Mr Cary) and Mvelaphanda would own more than 33% of the company and be able to act as a “block”. In addition, the PIC says, Avusa “underperformed with Mvelaphanda being one of the significant shareholders, and therefore their continued influence via this controlling block is of concern”.

Third, it worries about adding new debt to Avusa and, fourth, it bemoans the absence of a strategy to take Avusa into Africa.

At Business Day, we have a direct interest in the future of Avusa — it is a 50% shareholder in our publisher, BDFM, and we avail ourselves, for stiff fees, of its IT, circulation, human resources and other services. While no-one at BDFM is paid anything directly by Avusa, we sincerely hope the PIC can be persuaded to reconsider its decision not to back the proposed deal. Mr Bonamour and Mr Cary, we hope, will bend over backwards to reassure the PIC when they next meet that Avusa, to put it mildly, is a terrible mess — top-heavy and rudderless for a decade, a black hole down which untold sums of money are thrown on the slightest whim. To stand in the way, now, of the first possibility in years of the direct, motivated and engaged leadership every successful media group needs would be to prolong this agony. The PIC has no clear alternative to a plan it is happy to call “very sound”, so why walk away?

This is not a big deal. The fact that Mvelaphanda is singled out is evidence of the politics that is afoot for, even though his holding is in a blind trust while he is in the government, Human Settlements Minister and former Mvelaphanda chairman Tokyo Sexwale looms large in the imaginations of many.

As a direct (if harmless) rival to President Jacob Zuma for the ANC leadership, the thought that he may be able to turn Avusa newspapers against Mr Zuma clearly worries the PIC. But it shouldn’t. The Mvelaphanda share in Avusa will drop from 18% to less than 7% once the deal is done. Simply put, it will become a chip, not a block. A better block would put the PIC together with Mr Bonamour and Mr Cary.