What if Mvelaphanda Group’s R3-billion bid for Avusa is just what they say it is – an effort to unlock value by shareholders weary of waiting for the embattled media business to turn itself around? No sinister behind the scenes political machinations, no slash and burn retrenchments, no fire sale of underperforming assets. Can the deal make sense on industry fundamentals alone? Justin Wolff takes a look.
One has to feel for Avusa’s long-suffering shareholders who have sat and watched the shares underperform both the market and their peers. Mvela reportedly paid R49 a share for just over a quarter of Avusa in 2007, double the R24 of the current offer.
Mvela last reported their investment in Avusa at an intrinsic net asset value of R159-million after consecutive impairments of R50-million (2011) and R65-million (2010). The outlook seems little better, with Avusa’s recent trading statement indicating earnings for the year ended March 2012 will be at least 25% down.
With shareholders holding more than 65% of Avusa backing the bid, including Coronation, Cadiz, Old Mutual and Kagiso, the PIC (15%) appear to be the only potential stumbling block to Mvela getting the required 75% approval. The PIC voiced its concerns in Business Day, saying they would not support the deal in its current form, needing more clarity on the long-term plan.
The deal offers R24 per Avusa share, or 1,48 shares in Richtrau, a wholly-owned subsidiary of Mvela that houses the Avusa shares. If the deal goes through, Richtrau will be listed on the JSE and Mvela’s shares will be unbundled, giving shareholders a direct holding in the group’s media assets.
These assets include the Sunday Times, the Sowetan, half of Business Day and Financial Mail as well as a stable of other magazines and newspapers. The group also owns Nu Metro, Exclusive Books and Gallo music as well as book and map publishing businesses.
While the future of old media assets is generally thought to be dire, investment holding company Blackstar, Mvela’s largest shareholder and self-proclaimed catalyst of the deal, must feel that there is sufficient value to be unlocked to sustain their 35% average internal rate of return on investment since inception.
Blackstar’s CEO, Andrew Bonamour, currently also interim CEO of Mvelaphanda Group, has said the focus will be on the underperforming assets in the entertainment and book retail sectors.
Bonamour is looking to UHC founder and CEO Colin Cary to cut costs and focus on return on capital, anticipating improvements to start showing after about 18 months.
Wadim Schreiner, managing director of Media Tenor South Africa, welcomes the deal. “Mvelaphanda has a history of doing good deals. This commitment of capital demonstrates their confidence in the future of the media industry as well as the Avusa group – the assets of the group must still be making an impact to have value.”
Perhaps Blackstar sees the same potential in the industry as Warren Buffett, the world’s most consistently successful long-term investor, who has reportedly invested more than $300-million in newspaper companies in the past year.