The sale of Independent News & Media South Africa (INMSA) by its Irish owners will cause one of the biggest shifts in the media landscape in South Africa in years, no matter who buys it. Of course, the big question is: who is going to buy the venerable newspaper group with its stable of respected newspapers?
Independent Newspapers, as the group is more commonly known in South Africa, is struggling with the same issues as many newspaper groups around the world. They are: declining circulations and ad revenues, the demands of digital, and increased operating costs. Its Irish parent company, INM, is looking even more sorry for itself, with a debt of R4.2 billion that it needs to service. Reuters reported: “INM posted operating profit of €25.4 million in the six months to the end of June, 26% down on the previous year and well below the €155 million it made in the first half of 2007 before Ireland’s financial crisis hit the highly leveraged group hard.”
What this meant is that its rumoured decision to sell off its South African operations to help offset that debt became a reality. Investec in Sandton and Hawkpoint in Ireland were appointed to conduct the formal process for the sale and effectively pre-screen potential bidders.
Those who showed an interest in buying were sent a confidential document, providing a brief overview of the business for sale, key investment highlights and group financials. The document also apparently sets out that those still interested were meant to send a signed confidentiality agreement and other information by close of business on 26 September.
They needed to give details of the people involved in the bid (including shareholders and consortium information), indications of funding sources, other business interests and experience in competing and complimentary areas of business.
The document also included a request for an upfront assessment of any possible Competition Commission issues arising and how the prospective buyer plans to deal with this. This would obviously be an issue for any competing media group, a number of which are rumoured to be interested.
If INM then approved the prospective buyers, they would get a further and far more details information document that is expected to have all the nitty gritty on Independent Newspapers. This is meant to follow with the submission non-binding offers.
“INM obviously want to get many people interested and get the price as high as possible because they have huge debts that this sale is not going to come close to covering,” says highly-placed media source. “It is clear this is about getting as much money as possible and if they don’t get the price they want, they probably won’t sell.”
As for the confidentiality clause, they clearly don’t want people knowing the amounts and those who are bidding because it may affect the outcome. However, it is also standard business practice to have such agreements. “It certainly wouldn’t be good for any business if an unsuccessful bidder uses the information they got as a bidder to somehow prejudice the INMSA,” explained a business lawyer who also did not want to be named.
“The truth is INM has been ripping out more and more from this group over the years that they owned it and now they are simply wanting to use it to defray their debts,” says a senior media person who may be interested in bidding. “I don’t believe they have the interest of the country or the media at heart. It is all about cold hard money. Clearly, if they aren’t offered enough, they will not sell and just keep on sucking this company dry.”
Business Report editor-at large, Ann Crotty, reports that INMSA’s results aren’t upbeat. “The weakness in INMSA was particularly striking at the operating profit level. In Rand terms, operating profit was down 34% reflecting operating margins of just 12.2% – a level not seen by INMSA in over a decade.” Operating costs increased by 5.4%, which was deemed a good performance “given inflationary cost increases in excess of 7% experienced across the board”.
What INMSA does have are 18- paid-for newspaper titles – including the increasingly popular Zulu-language Isolezwe, The Star, the Pretoria News, Cape Argus, Cape Times, Daily Voice, Daily News, The Mercury, Saturday Star and Sunday Independent – and a loyal workforce.
In fact, the workforce has created a workers’ trust that hopes to buy 25% of the company when it’s sold. Crotty, who is one of the trustees of the workers’ Indie Trust, agrees 25% is a “substantial” number of shares, enough to “have influence at board level and have some input in the strategic decision-making”.
Of course, the strategic advantage of the Trust is that it will offer potential buyers a built-in black empowerment component. “At this stage, we have not had much difficulty convincing potentially interested parties of the benefits of having the group’s intellectual capital (i.e. the staff) involved in the ownership of the company; it advances the concept of employee-share ownership schemes (ESOPs) which is popular in South Africa and also – given the racial profile of the staff involved – offers the significant advantage of ensuring that the new owners will have a black empowerment stakeholder,” said Crotty.
The powerful Media Workers Association of South Africa (MWASA) is also on board with general secretary Tuwani Gumani a trustee. “We have always believed in worker-empowerment and this offers an opportunity to ensure that our members own a portion of the wealth they have toiled for decades to create for offshore beneficiaries,” says Gumani. “Media workers have some of the worst post-employment existences and this share-ownership scheme may very well change a few lives for the better.”
Irish owners, INM, pretty much stripped the South African company’s assets – including selling the iconic Newspaper House building in Cape Town – since buying the group in 1994. Gumani says INMSA shed over 3 300 jobs in that time. But, says Gumani, this probably means no further job losses will be expected when the group is sold. “…the asset-stripping of the past years was meant to keep the Irish shareholders happy at the expense of domestic jobs. The sale should allow for some confident investment in the group’s titles despite a rather difficult trading environment and pressures on print media,” he said.
The question vexing everyone from staff to unions is who has put in a bid for INMSA. The Sekunjalo Consortium (supposedly led by Sekunjalo Holdings chairperson Iqbal Surve, and which includes two unions, a Canadian billionaire and a Silicon Valley billionaire as advisers) is the name that is being bandied about, although to date, Survé’s company has not confirmed nor denied its interest. The bid is pegged at R2.4 billion, but Crotty says INMSA’s results have impacted on that number. “I am told – without confirmation from Sekunjalo – that it has been revised downward since the release of the recent interim results,” she said.
A highly placed source at INMSA said he didn’t believe money would be the ultimate decider when it comes to buying INMSA. “Let’s face it, newspapers aren’t the most attractive investment right now. In fact, the products could even be said to be on the skids. It’s an ego buy. Big players want to own newspapers. It’s about power, and the access to power. Price won’t be an inhibitor.”
Speculation is rife, however. The Gupta family, said to be close to President Jacob Zuma, and who recently launched The New Age in South Africa, have been mentioned but did not respond to questions from The Media.
Business Day mentioned a consortium that has the backing of Ethos Private Equity and is said to include Caxton Publishing, but a source at INMSA pooh-poohed that idea, saying Caxton chief executive Terry Moolman’s expertise lay in the community newspaper sector.
Crotty, in a blog on the Indie Trust website, said the Irish Sunday papers referred to another bidder, a company called Ignitive, backed by Pan African Private Equity Fund. “I have heard that there are two ‘developed bids’, one of which is Sekunjalo and a third, less developed expression of interest. Apart from Sekunjalo I do not know with any certainty who the others are,” Crotty said.
Whoever they are, South African sentiment is that foreign buyers must stay away. Media ownership and diversity is a key concern for the ANC-led government. “We believe selling to further foreign ownership will meet major resistance from most quarters including the South African government in line with commitments to improve media diversity at all levels, ownership and content,” Gumani said. “We have it on good authority that several of our national institutions including the Parliamentary Portfolio Committee on Communication, the Competition Commission, MDDA and others would make good on their commitments,” Gumani said.
Outspoken former editor, now publisher of Business Day (and the BDFM group), Peter Bruce, said the sale would “occasion the biggest political bunfight this country will see in many a year”. Bruce told readers of his Thick End of the Wedge column to “Expect to see big names such as Ramaphosa, Mbeki (Moeletsi), Gupta and Survé in there, but every man and his dog is going to have a go”.
South African CEO Tony Howard has told staff that if the sale were to go ahead it would be “a reasonably long process”. He said he was aware of the anxiety of staff “caused by the recent media reports and other speculation about the future and possible sale of our company”.
Staff is “apprehensive”, says Crotty. Another insider said staff were experiencing dual emotions. “On one hand they can’t wait to get rid of the Irish. But on the other they’re nervous some bastard will come in and strip it even further. But we’re hopeful a buyer committed to South Africa and who is prepared to invest in the company will save the day.”
In the meantime, the Indie Trust is giving them some hope that perhaps better things lie ahead.
“The sale of an asset such as INMSA has an unavoidable political dimension. We are hoping that by taking a 25% stake in the company the staff trust will be able to ensure that the management of these assets, in particular editorial policy, is not dictated by political considerations,” says Crotty.
“We are also hoping to be in a position to ensure that these media assets receive the sort of investment and nurturing that will ensure they are able to perform a useful socio-political-economic function; essentially that means that we would like to see the titles get the sort of investment that will ensure we produce rigorous and compelling newspapers for which there will be a strong demand – whether it is in digital or print form.”
Crotty said she had met chairman of INM, Denis O’Brien, the man who ousted Gavin O’Reilly (son of Tony) and who holds close on 30% of the parent company. “I have met with Denis O’Brien and two of his appointees to the INM board, Paul Connolly and Leslie Buckley on a number of occasions over the past three years.
“My first of a number of meetings with Leslie was in December 2009 in Dublin when I tried to persuade him to sell the company to a staff trust consortium. I told him a sale would be inevitable sooner or later given the perilous debt situation at INM plc. However at that stage the O’Reilly family controlled the company and would not consider a sale,” Crotty explained.
She said she believed O’Brien was “sympathetic to our vision and would like to see INMSA in the hands of owners that would help to grow the business AND make a positive contribution to South Africa”.
But, as Crotty points out, O’Brien only holds a 29.9% stake in INM. And “the board is obliged to do whatever is in the best interests of all the shareholders. This essentially means the board has to try to secure the highest offer”.
This story was first published in the November issue of The Media magazine.