The commercial and political battle for the control of media group Avusa – second most powerful of South Africa’s media houses and publisher of the Sunday Times newspaper – continues to claim major casualties despite the expiry of the offer made for the group by private equity firm Capitau.
The departure of Avusa CEO Prakash Desai earlier this week was the latest in a long line of high-profile departures from the group, as a direct result of the fallout from the Capitau takeover and long-standing disagreement about the company’s strategic direction. Desai was at loggerheads with major shareholders last year, especially Mvelaphanda Holdings, over the acquisition of printing company Universal Hirt and Carter (UHC) for R900-million.
At its recent AGM, the group saw its chairman Dumisa Ntsebenza, long serving director Tom Wixley and newcomer Babalwa Ngonyama withdraw from re-election when it was clear they would not have sufficient shareholder support. This comes after the board refused to extend time for Capitau’s unsolicited R26-a-share offer.
Capitau is in the process of applying for tax permits from South Africa’s Treasury to source its funding abroad and will be back, probably with a slightly higher offer – perhaps R28 – to sway those shareholders not already irrevocably bound to support the deal. The deal’s leading supporters are Mvela, which holds 21,2% of Avusa; Coronation (20,4%); and UHC, which now holds 16% of Avusa courtesy of the Desai deal. Mvela could emerge as the controlling investor in the leveraged buyout to realise a long-term dream of owning control of Avusa’s press portfolio.
The deal – likely to be concluded for between R3-billion and R4-billion – may not be financially earth shattering, but its political ramification could be significant. Besides publishing the Sunday Times – the country’s largest weekly and most profitable title – the Avusa stable contains other titles attractive for their political and social significance, if not their profitability. The Sowetan (and sister title the Sunday World) is the country’s most enduring historically “black” newspaper. Avusa also holds 50% in BDFM titles, Business Day and the weekly Financial Mail, South Africa’s most influential business newspapers. BDFM also operates business-oriented pay-TV channel Summit TV.
The acquisition of Avusa is therefore attractive to a politician-turned-businessman-turned-politician looking for a platform from which to promote his case to take over the ruling party, either at its next conference in 2012 or the one after that in 2017. Enter ANC national executive member Tokyo Sexwale. Sexwale is the founder of Mvela, and currently minister for human settlements in President Jacob Zuma’s cabinet, following his return to active politics in 2009.
There is speculation in ANC circles that Sexwale has his eye eventually on the main job (hardly surprising) and wants to use the influence of controlling his own media house to help him along (somewhat surprising).
The latter claim is surprising because there is scant evidence that the press plays a significant role in determining political fortunes in South Africa. Literacy and education levels are generally low, and newspaper readership stagnant. The only exception to the rule is the Daily Sun, a decidedly apolitical redtop owned by Avusa competitor Media24.
Among ANC members and voters especially – even the literate ones – newspaper influence is severely limited by the ruling party’s near institutional mistrust of “the liberal press”. Yet the ruling party’s mistrust of the media stands in inverse proportion to the number of ANC politicians who court influence and even control of media outlets.
Publicly Mvela CEO Mark Wilcox does his best to deny any political imperatives to his company’s investments. Avusa, he insists, was a purely commercial investment that made business sense. In any case, Sexwale has never had anything to do with the editorial policies of any of the Avusa titles, he says.
But sources close to Sexwale say that he is currently riding out the Julius Malema disciplinary hearing, which might put him at odds with the current leadership as he is expected to testify for Malema (see Malema hearing resumes in this edition). That will go some way to determining whether he stays in the race for the ANC succession.
From a purely commercial standpoint, Mvela probably sees itself as the shareholder to lead the process of unlocking value at Avusa. The group is underperforming, and has been left standing by its major competitors.
Chief among these is Naspers, the parent company of Media24. In 2000, the companies were comparable with Avusa revenue at R8,3-billion and Naspers at R7,1-billion. This year Avusa’s revenue – recovering from the recession – stood at R5,3-billion, while Naspers shoots the lights out with R33-billion, evolved beyond recognition through its dominance of the local pay-TV market and internet investments in emerging markets ranging from China, through Ten Cent, to Eastern Europe and Brazil.
Naspers’s growth strategy is driven by directors who have absolute control through a special class of shares that allows them to make long-term decisions and reinvest in the business. Avusa’s institutional shareholders, on the other hand, need to extract dividends more rapidly and force the company to take decisions based on short-term benefits, such as the decision to sell its lucrative 38% stake in pay-TV provider Multichoice, without a clear alternative digital investment strategy.
Wilcox this week reiterated Mvela’s intention to “get the value of Avusa to levels we bought at and above”. Mvela bought into Avusa in 2007 at around R40 a share, a move that kept out Koni Media at the time, a consortium comprising veteran government spokesperson Ronnie Mamoepa, among others. When the recession hit it decimated advertising revenue and consumer spending, affecting Avusa’s print titles and subsidiaries Nu Metro, Gallo Music and Exclusive Books.