Strategic split
As owner of SA’s biggest weekend newspaper, the Sunday Times, and co-owner of its most influential business titles — Business Day and the Financial Mail — management were not short of free, albeit unsolicited, in-house advice.
That the company took so long to draw up a coherent strategy, and forged ahead with significant deals such as the sale of its stake in M-Net and SuperSport in the interim, without properly considering the long term implications, is an indictment of both past management and the major institutional shareholders.
The decision, announced earlier this week, to hive the company’s media interests off into a separately listed entity, comes within weeks of Prakash Desai finally being appointed CEO after having acted in the position for the eight months since former incumbent Connie Molusi was forced out. The two events are clearly connected — it is common knowledge that the board was split during Molusi’s tenure, specifically with regard to Johncom’s complex relationship with the rival Caxton group and the long-promised black economic empowerment deal — and Desai’s appointment indicates that his vision has eventually been allowed to dominate.
Belated it may be, but the proposed separation of the 38% Caxton holding from the group’s media, publishing, music and entertainment divisions will kill two birds with one stone, avoiding any unwelcome attention from Caxton and opening the way for a major black empowerment deal as part of a new listing. It will also put considerable pressure on the less profitable parts of the new company to shape up. With the bulk of Johncom’s profits having come from Caxton dividends and M-Net/SuperSport’s strong cash flows in the past, some of the media operations were allowed to coast. As part of a considerably smaller media listing, those days will surely be over.
Diversification and consolidation are trends that tend to follow a cycle, but few would dispute that Johncom’s media interests have suffered from the group’s lack of focus in recent years. The rise of new media, such as the internet, and a general increase in competition for both audience and advertising in SA, left the company’s media outlets at a disadvantage compared with their more nimble competitors. Successful media companies require managements that understand the product and can focus their attention on the core business.
As the holder of politically influential titles, Johncom’s ownership and empowerment status was always going to attract attention. The M-Net/SuperSport transaction is proof enough that institutional shareholders are always going to be motivated primarily by profit, and that this is not always in the company’s long-term interests.
However, swapping this arrangement for a dominant shareholder with a specific political agenda could be just as damaging, if not more so. If ever there was a need for a truly broad-based black economic empowerment deal, this is it.
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