| Fri 11 Apr 2014, 14:45 | | TIMES MEDIA GROUP LIMITED - Category 2 Transaction Announcement: Acquisition Of A 49% Interest In Radio Africa Limited In Kenya And Cautionary |
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TMG 201404110023A
Category 2 Transaction Announcement: Acquisition Of A 49% Interest In Radio Africa Limited In Kenya And Cautionary
Times Media Group Limited
Incorporated in the Republic of South Africa
Registration number: 2008/009392/06
Ordinary share code: TMG
ISIN code: ZAE000169272
(“TMG”) or (“the Company”)
CATEGORY 2 TRANSACTION ANNOUNCEMENT: ACQUISITION OF A 49%
INTEREST IN RADIO AFRICA LIMITED IN KENYA AND CAUTIONARY
ANNOUNCEMENT
1. Introduction
TMG is pleased to announce that Times Media (Proprietary) Limited, an
wholly-owned subsidiary of the Company, entered into an agreement to
acquire a 49% interest in Radio Africa Limited (“RAG”) in Kenya, through the
acquisition of existing ordinary shares in RAG, the subscription for new
ordinary shares in RAG and the acquisition of shareholder loans for a total
purchase consideration of US$ 18.62 million, being approximately ZAR195
million (“Purchase Consideration”) (“the Acquisition”).
2. Description of the business carried on by RAG
RAG is a leading Radio, TV and Newspaper business in Kenya and it
operates three of the top five radio stations in Nairobi, namely Kiss FM, Radio
Jambo and Classic 105. RAG is one of the top three media groups in the
Kenyan market.
Its radio business broadcasts five channels, Kiss FM, Classic 105, Radio
Jambo, XFM and EastFM, and these are the core of its business. Its
television channel, KissTV, will be replaced by a Digital Terrestrial Television
(DTT) service offering within the next six months as the country switches on
digital television broadcasting. Its newspaper, The Star, is Kenya’s third
largest in terms of circulation and was launched in 2007.
RAG is headed by founders Patrick Quarcoo (“Quarcoo”) and William Pike
(“Pike”) and has other small minority shareholders. The vendors to the
Acquisition consist of Longhorn Investments Limited, Sirwo Enterprises
Limited, SK Vidyarthi, Transat Limited, Kitambo Limited and Xynergy
Investments Limited (“the Vendors”). Following the Acquisition, Quarcoo and
Pike will remain significant shareholders in RAG alongside TMG.
RAG has an impressive and entrepreneurial management team. It operates
with high levels of corporate governance, accountability, efficiency and
transparency. RAG management is highly focused and closely aligned with
TMG’s philosophy and strategy.
Quarcoo and Pike also own two radio stations in Uganda, Capital Radio and
Beat FM, and as part of TMG’s second phase of investment in the region,
TMG have agreed in principle on acquiring 49% of their Ugandan assets. This
deal in Uganda is a small transaction and remains subject to further
conditions and further due diligence.
3. Rationale for the Acquisition
TMG’s strategy in Africa is to take strategic stakes in quality media
companies, backing solid management teams who understand the
environment and nuances of doing business in particular regions.
The Acquisition represents a significant opportunity to realise TMG’s strategy
of geographical and format diversification as well as harness its existing
content and management expertise. In the past year TMG has successfully
acquired a stake in Ghana’s Multimedia Group Limited and bought controlling
interests in two radio stations in South Africa – Rise FM and Vuma FM.
The Kenyan economy is the biggest in East Africa and this is reflected in its
relatively developed media market which takes some 80% of ad-spend in the
region. With a population of about 43 million and GDP growth of 4.5% it has
scale and the ability to provide a platform for other East African opportunities,
especially in Tanzania and Uganda.
RAG offers a significant opportunity as our beachhead into the fast growing
East African market with an established media business producing strong
cash flows from radio, high television growth potential and a solid newspaper
base from which to develop market share. Radio attracts by far the largest
share of advertising spend in the Kenyan market and television is second but
with strong growth prospects. The business fits well into TMG’s broadcast
expansion strategy in South Africa and the continent, and provides a growth
opportunity in print not available in SA.
Digital is also a significant opportunity. Kenya has adopted a “build it and they
will come” strategy with regards to broadband rollout and its highly developed
mobile internet culture provides advertising and ecommerce opportunities.
While broadband rollout has been impressive, limited commercial
development of news, classifieds and ecommerce products opens up gaps for
new market entrants. Kenya’s Mpesa mobile payment system is the most
developed in the world and opens up a market for micro billing that few other
countries in Africa have been able to develop.
The business will continue to show steady growth off its radio platforms and
newspaper development, but its significant upside is in its television platform
and potential digital assets.
RAG also owns Lancia Digital, a self-provision Digital Terrestrial Television
(DTT) operator which it will use to launch Bomba TV, a multi channel free-to-
view platform which with an initial capacity of 18 channels. It is planned to
launch in the next few months as a joint venture with other value-adding
partners with a focus on local content, the key driver for television across the
continent. TMG will offer its experience in television in SA and Ghana to help
develop and grow the service.
The business also has regional growth opportunities. In addition to the
Ugandan acquisition, Tanzania offers early stage investment opportunities for
TV and radio.
RAG’s Star newspaper has built a solid platform from which to grow both
circulation and advertising market share. Our newspaper executive team has
already identified areas for growth and efficiency with The Star and will begin
work on this as soon as all conditions have been fulfilled.
4. Group benefits
TMG will add value to RAG at a strategic level, and offer support, capital and
guidance in areas such as television content provision and sourcing, digital
rollout, newspaper skills transfer and content provision and training for print,
television and radio. TMG executives will be very involved in the television
assets and newspaper turnaround, as we have skills in both areas.
TMG’s film distribution and music businesses can help secure content which
in turn can drive usage and revenues in their own divisions, while our digital
businesses such as Amorphous, Acceleration and Career Junction have
already identified growth opportunities in the region as a result of its
advanced technology position.
TMG’s television production and channels businesses will work closely with
RAG to support the implementation and development its new television
strategy.
5. Purchase consideration and the Acquisition structure
The Purchase Consideration to be paid by TMG will be used to acquire 49%
of the ordinary share capital was done through the acquisition of existing
ordinary shares, the subscription for new ordinary shares in RAG and the
acquisition of shareholder loans. R36 million of the Purchase Consideration
will be used to subscribe for new shares which will form a strategic cash
reserve in RAG which will be used for future activities as the business does
not have any debt.
A portion of the share sale proceeds, being US$5.9 million, will be placed into
escrow until certain warranties are met.
RAG’s full year normalised EBITDA for the year ended 30 June 2014 is
forecast at R45 million with 3 months of trading remaining in the current
financial year which includes sizeable development costs for television and
losses for newspapers. This equates to a purchase price Enterprise Value /
EBITDA ratio of 8.0 times for TMG.
The Vendors and TMG have provided warranties and indemnities to each
other that are standard to a transaction of this nature.
6. Conclusion
RAG offers TMG a unique opportunity to enter a closely-held media market
within Kenya and across the East African region. TMG now has exposure to
West Africa through Multimedia Ghana and East Africa via RAG. Both RAG
and Multimedia are springboards into the fast growing regions in East and
West Africa
It is our intention to work closely with both management teams to grow the
respective businesses and deliver a new growth path for TMG across the
continent, as well as continuing to build on our South and Southern African
assets across multiple platforms. TMG executives are intimately involved in
growing and further developing the Ghanaian Television business. We have
already identified key areas within the RAG Television business and
newspaper where we can play a key role in their future development.
7. Conditions precedent
The Acquisition is subject to the following outstanding conditions precedent to
be fulfilled on or before 30 business days from the date of signing (“the
Fulfillment Date”):
• The Vendors and TMG having agreed the terms of the shareholders
agreement;
• TMG having agreed with Quarcoo and Pike the terms of a non-
compete agreement;
• The warranties contained in the sale and subscription agreement
remain true and accurate.
8. Pro forma financial effects
The pro forma financial information applicable to the Acquisition are still in the
process of being finalised and will be published in due course.
9. Effective date of the Acquisition
The effective date of the Acquisition is the fifth business day after the
conditions precedent have been fulfilled as detailed in clause 7 above.
10. Classification of the transaction
The Acquisition is classified as a Category 2 transaction in terms of the
Listings Requirements of the JSE Limited.
11. Cautionary announcement
Shareholders are advised to exercise caution when dealing in the Company’s
securities until a full announcement regarding the pro forma financial effects
in relation to the Acquisition is made.
11 April 2014
Johannesburg
Sponsor:
PSG Capital
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