Avusa takeover, harbinger of mediascape's change?

Mvelaphanda’s R3-billion bid to take control of Avusa has been welcomed by the market, which says it’s about time the media house got clear management direction, but market sentiment is mixed about whether this transaction is purely business, or driven by political ambition.

On completion the deal would see Mvelaphanda own the remainder of the Avusa shares not under its control, through an investment vehicle called Richtrau, which currently holds Mvela’s existing Avusa shares. (Disclosure: Mvelaphanda was controlling shareholder in Business Century, publisher of this publication's spiritual predecessor, Maverick magazine).

The bid offer is R24 a share, but the deal is likely to be mostly done on paper, analysts say, with Avusa shares being swopped for Richtrau shares. Mvela first bought a stake in Avusa in 2007 when its 25.5% share in the media house cost R49 a share. It’s reported that Mvela has good support for the bid from other shareholders. These shareholders include Coronation, Kagiso and Universal Print/ Hirt & Carter.

Presidential aspirant Tokyo Sexwale founded Mvela and is the non-executive chair of Mvelaphanda Holdings. He’s the man presumed to be driving the ABZ (Anyone But Zuma) campaign to unseat Jacob Zuma. The Mvelaphanda bid to own Avusa comes at the same time that one-time ANC activist-cum-CEO of Sekunjalo, Iqbal Surve, is reportedly on his way to Dublin to negotiate the purchase of Independent News & Media SA (The Star, Sunday Independent, Isolezwe ngeSonto, Daily Voice, Cape Times, Cape Argus and Weekend) from its ailing Irish owners, Independent News & Media plc.

ANC stalwart Cyril Ramaphosa of Shanduka Investment Holdings has been suggested as another candidate interested in buying Independent. A little under a month ago, Derek Hanekom, an ANC NEC member and deputy minister for science and technology, put on his tap shoes for Ramaphosa in front of a star-studded audience. At a discussion on the life of Walter Sisulu at Wits, Hanekom said: “We need leaders of comrade Cyril’s calibre. I know comrade Cyril is very good at business, but I really wish he would put all his money in a trust and step up for a higher and more senior position.” Those present included Max Sisulu (Speaker of Parliament); Jimmy Manyi (the government’s spin meister); David Makhura (ANC provincial secretary for  Gauteng) and Joburg mayor Parks Tau. In true “coy” ANC fashion Ramaphosa said Hanekom had made a joke.

But Rhodes University’s Jane Duncan says it is no coincidence that Sexwale and Ramaphosa are being mooted as serious contenders to the presidency at a time when they’re buying or being linked to the purchase of media assets.“It is important to look at the Mvelaphanda/Avusa deal in terms of what may or may not be happening to Independent as well,” says Duncan, chairwoman of Media and Information Society in the School of Journalism and Media Studies. “The time frame is particularly interesting and, although the prospective buyers would strenuously deny this, I don’t think it is possible to see these developments outside of the context of Mangaung."

For analysts and the business market, the Mvelaphanda bid for Avusa is about turning around a non-performing investment. “What you’re looking at here is a move by Mvelaphanda to gain control over Avusa and to consolidate that interest under Richtrau, which is the vehicle that Mvelaphanda has used for the ownership of those shares. It is likely that we might see a listing by Richtrau on the JSE at some later stage,” says Kevin Mattison, an analyst and director at independent equity research firm Avior, who pooh-poohed the notion that the ownership bid for some of South Africa’s more influential newspapers had anything to do with Sexwale’s presidential ambitions.

"Avusa has been struggling for some time and there have been ongoing management issues and conflicts with shareholders, which culminated in the departure of Prakash Desai (former Avusa CEO). Mvelaphanda wants to realise value in its investment in Avusa and by taking control and installing management that shareholders have confidence in, it is more likely that the company can be turned around,” Mattison says, adding that the deal will likely be done mostly on paper and would realise some debt for Richtrau.

Meanwhile, acting CEO of Mvelaphanda, Andrew Bonamour, was quick to reassure staff that this wasn’t an asset-stripping exercise and that jobs were safe (for now). “We are builders. We are not here to cut staff but rather to provide support to turn around this business,” Bonamour told Moneyweb. “In our view, Avusa can do a lot better, and we should start to see this improvement in around 18 months,” said Bonamour, adding that the management would focus on poorly performing assets like those in the entertainment and book retail sector.

The changes that are coming include a new CEO in the form of Colin Cary and a much smaller board. Cary became part of the Avusa board after the media company’s acquisition of Hirt & Carter, which Cary founded some 35 years ago.

Cary sold Universal Hirt & Carter to Avusa in June 2010 for a neat sum. The deal saw Avusa buy Universal Print Group and Hirt & Carter from UHC for R925-million. In terms of the deal, 20.55-million new Avusa shares went to UHC, together with a cash payment of R462.50-million.

As news of the bid spread through the market, Avusa was quick to put out a statement to try to allay fears regarding editorial interference. “The new shareholders have committed to upholding and abiding by the spirit and principles of the Avusa Media Editorial Charter, which promotes a free media and editorial independence,” Mike Robertson said in a company statement. Robertson is currently acting CEO, a position he’s had since Desai’s departure.

But the professor of Journalism and Media Studies and director of the Journalism Programme at Wits, Anton Harber, says it is unlikely that influence will be brought to bear soon, if at all.

“It is way too soon to influence anything that’s going to happen to Mangaung. A paper like the Sunday Times might be useful to Tokyo Sexwale’s long-term presidential aspirations, but they’d be fooling themselves to attempt to exert influence on newspapers run by Avusa,” says Harber. "Sunday Times can go off the rails at times, but when it is good it sets the public discourse for the week. The investigative team at The Sunday Times has been a massive differentiator for the paper, and by messing with the editorial and investigative operation the newspaper’s owners would only be devaluing the paper. It’s a tough market and there is strong civic activism in this sector so any interference won’t go unnoticed. That said, I don’t think that an ANC-aligned media operation would be bad for South Africa,” Harber added.

Harber explained that all newspapers have an ideological bias, and that as long as this is declared upfront, media ownership is a matter of fair game. Rhodes’ Duncan said exerting influence wouldn’t be easy “because these companies are management controlled, and there isn’t necessarily a direct line between ownership and editorial content. But there are indirect ways of influencing the direction of the company."

"The main way of influencing the editorial content is through shareholders exercising control through the appointment of a board of directors, who in turn exercise control through the appointment of an editor. If any kind of attempt was made to shape the editorial direction of the newspapers groups it wouldn’t be crude: there wouldn’t be any direct form of intervention. But there would be attempts to identify and appoint editors that would fit with the vision that the board of directors and the shareholders would be happy with,” she adds.

Duncan believes the problem with the local print news industry is that it is highly consolidated, and this is precisely what makes it vulnerable. “Media24 owns close to 40% of total newspaper circulation, followed by the others. The danger of having such a consolidated media industry is precisely that a political lobby group could decide to buy out part of the media industry and in the process of doing that, could end up exercising control over significant chunks of the media, and consequently of public opinion. This is why the over-consolidated nature of the print media in South Africa is dangerous for democracy because it opens up the door to these kinds of problems.

"If these kinds of sales are going to go through, it is going to be exceedingly important that the sales are accompanied by charters of editorial independence to make sure that editorial independence is guaranteed, and that mechanisms are put in place in the event that disputes should arise between the board of directors and editorial staff,” Duncan advises.

Another factor is the lack of transformation in the print media sector. “There is a lot of pressure on the print media groups and ownership is a major Achilles' heel. There’s no doubt that the ownership profile of print media needs to change - it is unacceptable that the ownership profile of the industry is so completely out of step with the demographic profile of a country as a whole."

”But the sector will be damned if it does transform, and damned if it doesn’t, according to Duncan. “If they do transform it is very likely that prospective black South African owners are going to be linked to one or the other faction of the ANC. That’s a hard reality of the state of the major BEE transactions in SA."

The timing of the Mvela bid certainly is intriguing. “The most interesting thing about this is that it is a bold thing to take over a newspaper business when all over the world you have newspapers in decline, and it is not as if there are all these new business models that are emerging to save them,” says William Bird, director of Media Monitoring Africa. “This is interesting because in South Africa it speaks to the power of the newspapers – from a purely business perspective I think it is an unusual decision.”

More so given that the JSE has announced that it is killing off a “cash cow” that has favoured English newspapers in particular. Glenda Nevill of The Media Online reports that the JSE looks set to overturn a regulation that feeds about R200-million to newspapers a year.

“The deal dates back to 1967 when a regulation came into effect that JSE-listed companies had to publish what was called 'price-sensitive information', and that included financial results, in one English and one “other than English” daily national newspaper,” writes Nevill.

As Bird says: “If I were in business there’d be far better things to spend one's money on than a newspaper whose model is defunct and where you have seen circulation figures dropping over the last few years across the board - with the exception of vernacular titles.”

That is, of course, if this were a business investment. If you are investing in influence or clout, as Citizen Kane would tell you, that’s a different matter altogether. DM

Read more:

• Mvelaphanda makes offer for Avusa in Business Day


• Mvela’s bid for Avusa is no garage sale on Moneyweb


• South Africa: The Leadership Race Opens Up via Africa Confidential


• Tokyo takes on Zuma on TimesLive