The sale of Independent 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 […]
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.”
“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.
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.
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.
Culled from Media Line