What is Manyi really buying?

Analysts say ‘absurd’ deal was struck even though ANN7 and The New Age were never set up to be viable media outlets

Mzwanele Manyi, a staunch defender of the Gupta family, will be grossly overpaying for the family’s media empire over the next few years after agreeing to buy television channel ANN7 and The New Age newspaper for R450m.

Oakbay Investments, the Guptas’ investment vehicle, is vendorfinancing the deals, whereby Manyi’s Lodidox and management will take Oakbay’s 65% shareholding in ANN7 operator Infinity

Media Networks for R300m, and its two-thirds stake in TNA Media for R150m.

Documents seen by the Financial Mail show that 22 months ago accounting firm Cajee Razak & Associates placed Infinity’s value at between R40.5m and R60.6m, valuing Oakbay’s shares at R39.4m.

The valuation was done for the sale of most of the shares owned by Indian shareholder Essel Media, which owns Zee Entertainment on the subcontinent, to Oakbay last year. Essel retains a 5% stake in Infinity.

Working on a number of assumptions — including 2% GDP growth and a 10% market rate of return — Cajee Razak gave Infinity Media an enterprise value of R52.2m based on the present value of its future earnings, which dropped to R40.5m when its assets and liabilities were taken into account.

On a discounted cash flow or absolute value basis — another popular valuation method — the value of Infinity’s shares was placed at R60.6m.

SA’S GDP rose 1.3% for the 2015 year, dropping to 0.3% the following year. The JSE all share index delivered an 8.28% return between the date of Infinity’s valuation and the announcement of the deal on Monday — negating two key assumptions used to pump up Infinity’s value.

Manyi did not respond to detailed questions about how Oakbay’s interest ballooned between 395% and 640% to R300m in less than two years, and the repayment terms of the vendor-financing deal.

Vendor-financing agreements usually entail payment for the seller’s shares from future dividends declared by the businesses acquired by the buyer.

But Infinity had not declared a dividend from its founding up until Essel sold its interest. Infinity Media’s net profit a er tax