Printing and publishing company Caxton has tabled extensive research into the control structure of Naspers at the Competition Tribunal and suggested that former CEO Koos Bekker, former MIH head Cobus Stofberg and Sanlam are in ultimate control. It alleges that these facts were not reported in a merger filing to the Competition Commission, despite a legal obligation to do so.
Caxton applied to be allowed to intervene in the large merger application of Media24, a subsidiary of Naspers and the Paarl Media Group, Paarl Media Holdings, and Paarl Coldset. [The Competition Tribunal ruled on Monday, 18 August 2014, that Caxton may join. Read the ruling here.]
The Competition Commission, which is one of the respondents, has recommended the unconditional approval of the merger to the Competition Tribunal. The merging parties opposed Caxton’s application.
Caxton argued that the merger involves the largest publishing company in the country (Media24) with the largest printing company (Paarl Media). It questioned the commission’s acceptance of the merging parties’ notification of the merger and said it was defective due to insufficient disclosure of the direct and indirect interests of the controlling shareholders in Media24 and the Paarl Media Group (PMG).
Caxton said this disclosure should go “right to the top”. The interests of all parties should be investigated to properly assess the competitive impact of the merger, it said.
In its initial submission, the merging parties said Media24 is a subsidiary of Naspers, which is a listed company and as such not controlled by any company.
Only upon enquiry by the commission did the merging parties disclose that Naspers Beleggings Ltd. (Nasbel) and Keeromstraat 30 Ltd. (Keerom) have 50% of the voting rights through its unlisted A ordinary shares. Wheatfields 221 (Pty) Ltd. (Wheatfields) has a further 11.7% of the voting rights, also through unlisted A ordinary shares. The A shares have 1 000 votes per share, as opposed to the listed N shares that have one vote per share.
Caxton criticised the commission, which recommended the unconditional approval of the merger, for accepting the merging parties’ contention that the Naspers control structure had little bearing on the assessment of the competition impact of the merger. Caxton said the commission should have investigated the Naspers control structure further.
It said the merging parties were economical with the truth and tried to mislead the commission by stating earlier that Naspers is not controlled by any firm.
Naspers tabled documents at earlier tribunal proceedings that clearly showed the locus of control of Naspers lay with Nasbel, Keerom and Wheatfields and the individuals behind it are South African citizens, Caxton said.
Caxton then sought to show that ultimate control is in the hands of former CEO and now Naspers chairman Bekker, former MIH head Stofberg and Sanlam through a complex web of cross-shareholdings in various vehicles and a voting pool agreement.
Caxton said it has done a lot of work to show who was in control of Naspers, but further research is needed into the interests of Bekker, Stofberg and Sanlam in other companies in the printing, publishing and media industries.
Caxton argued it is best placed to assist the tribunal with such an investigation and should therefore be allowed to intervene. It also wants to be present at the merger hearing and be able to cross-examine witnesses.
Statements in prior tribunal proceedings – about the operational independence of the Paarl Media Group – are also at odds with their current contention that little will change after the merger, Caxton said. The merger effectively sees minority shareholder Lambert Retief, who retained operational control through an earlier management agreement, withdrawing from Paarl management and selling his remaining 5% and 12% interest in the coldset and heatset printing companies to Media24. Media24 will then own 100% of the group.
Caxton further expressed concern that the merger would lead to ‘co-ordinated effects’, a term used for collusion, and the possible foreclosure on Media24 competitors printing at Paarl Media Group.
Advocate David Unterhalter SC for the merging parties said if Caxton is concerned about the competency of the notification or the commission’s acceptance of the disclosures, it should have brought a review application, and that an application to intervene was not the correct procedure.
He said one could appreciate why it would be important for Caxton to understand the Naspers control structure, but it is not clear why it would be relevant to the tribunal in assessing the impact of the merger.
Unterhalter further argued that one should have a clear understanding of what operational independence is. He said the management agreement between Media24 and Retief was drafted in 2008 in order to establish a nuanced regime incorporating different forms of control. It should be read with the shareholder agreements. Media24 always had shareholder and board control over Paarl Media Group, he said.
De facto control over operations was in the hands of Retief, but he has moved from an executive to a non-executive role as is normal when people get older and near retirement, Unterhalter said.
Retief is 61 years old.
Caxton was very clear on its need to get detailed information on Naspers’ control structure, but very vague on the possible harmful effect of the merger and possible collusion that may follow, Unterhalter said.
He further stated that Paarl Media Group’s operational independence was aimed at getting printing contracts from Media24’s rivals and asked why this incentive would stop working after the merger. “Caxton itself is vertically integrated with printing and publishing assets and manages it without competition issues. Why would it be a problem here?” he asked.
[Caxton is a majority shareholder in Moneyweb.]
This post was first published on Moneyweb and is republished here with the permission of the editor.
