Warren Buffett, the Oracle of Omaha, last month bought a 19.9% stake in New York-listed Media General. And this week, Mvelaphanda, pushed by 28% shareholder Blackstar, made a R3bn share and cash offer for media group Avusa, the owner of the Sunday Times, The Times, Sowetan and Sunday World, as well as half of Business Day and Financial Mail.
Blackstar CEO Andrew Bonamour, who is also interim CEO of Mvelaphanda, has seen value in Avusa for some time and said it was the Mvelaphanda asset he was most interested in when Blackstar bought the 28% stake of the diversified company in January.
But, in addition to his conviction that print media still has long legs in South Africa, a country with just over 1% internet penetration, Bonamour believes Avusa's entertainment businesses hold a great deal of value that has not yet been capitalised on.
Gallo Music, for example, owns the rights to a vast library of music, and Nu Metro owns cinemas. While Avusa earns revenue whenever its music or movies are bought, he believes the sales platforms can be grown.
DStv's BoxOffice offering is one example of how sales can be grown digitally.
Mvelaphanda used shelf company Richtrau to make the R3bn bid for all the Avusa shares it does not already own. This puts the share bid at R24 - a 19.6% premium on the 30-day volume-weighted average price of R20.07 at close of business the day before the offer was announced.
Shareholders who want to stay in the new company will get 1.48 Richtrau shares for each Avusa share they hold.
Avusa will be delisted and Richtrau will be unbundled from Mvelaphanda and listed on the JSE. The company will then be renamed - quite possibly making a return to its former Times Media moniker - and a new, smaller board will be put in place.
The new operating company will be headed by Colin Cary, who is currently MD of Avusa Retail Solutions. Cary, described by those who know him as a consummate entrepreneur, was the former CEO and founder of Hirt & Carter, a company Avusa bought in November 2010.
The Mvela transaction document says Cary will be supported by a "strong management team incentivised on implementing and delivering a turnaround strategy to create shareholder value". Importantly, they will be supported by Blackstar, but this support will not be directly hands-on, Bonamour said on Tuesday after the announcement.
Financing for the deal has come from Mvelaphanda, which capitalised Richtrau with R480m, and from R650m in bridging finance from Nedbank, Standard Bank and RMB.
Part of the conditions of the banks' financing is that Blackstar must not decamp from the company for at least three years. Bonamour, however, said the company was likely to stay and drive the turnaround for longer than this "lock-in" period.
While Bonamour has assured Avusa staff there will be no retrenchments or asset stripping of the company, there will certainly be changes. Inefficiencies will be addressed by making the various businesses more interdependent instead of entirely distinct, as they are now. For example, Bonamour said the newspaper delivery trucks could deliver books to Exclusive Books outlets once their morning deliveries were done. Exclusive Books could potentially also sell DVD movies from Nu Metro and music from Gallo.
Richtrau has irrevocable undertakings from Avusa shareholders - holding collectively 65.01% of the shares - to vote in favour of the offer. It needs 75% and the Public Investment Corporation (PIC), which has a 17.4% shareholding in Avusa, has reservations in giving its outright support. Meetings between the Mvela Group, Richtrau and the PIC are scheduled for this week.
Among the PIC's concerns is the question of why, if the turnaround is going to be done using resources currently available, should the company be sold to a third party that is not bringing new skills or resources? It also questions the ability of the consortium to affect a turnaround given that its members have no expertise in the media industry.
Richard Tessendorf, analyst at Avior Research, says the PIC's shareholding is not enough to scupper the deal. If it does not come around though, protracted and expensive litigation can be expected - turning bitter what many believe is a sweet deal all round.
Source: Business Times via I-Net Bridge
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