| Wed 18 Jul 2001, 0:00 | | Primedia Limited - Proposed Splitting Of Primedia |
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("Primedia")
Announcement regarding the:
- proposed splitting of Primedia into two listed entities;
- refinancing of Ster Century Europe;
- intended conversion of the debenture portion of Primedia's combined units;
and
- cautionary announcement.
1. Splitting of Primedia into two listed entities
1.1 Introduction
In order to optimise the growth potential and profitability of the group,
the Board of Directors ("the Board") has unanimously resolved to propose the
splitting of the group into two substantial listed entities each having its
main focus in its core competencies ("the proposed split").
The two entities will consist of:
- "Filmco", comprising Primedia's filmed entertainment interests in South
Africa and internationally. Filmco will be one of the largest cinema
exhibitors outside of the United States with over 600 screens and 35 million
attendances per annum. Filmco will also have interests in video, DVD and
interactive games distribution; and
- "Adco" being the reconstituted Primedia, comprising the group's leading
South African based advertising businesses as well as Primecom. Primecom is
the group's one-to-one marketing services business based in the United
Kingdom ("UK"). Adco's pro forma turnover and operating profit before
depreciation for the year ended 30 June 2000 was R1,2 billion and R202
million, respectively.
The growth potential for each entity will also be enhanced in that each will
have its own independent board of directors, focussed management teams and
access to capital.
1.2 Structure
Following the proposed split, Primedia unitholders will be invested in two
separate listed entities.
The current and pro forma proposed structures are set out hereunder:
See Press for details
1.3 Rationale
Over the last twelve months the Board has evaluated a number of alternatives
to maximise the prospects and value of its businesses, including the
proposed split.
The proposed split is motivated by the different earnings profiles,
operating disciplines and capital requirements of the group's advertising
and filmed entertainment businesses particularly in the context of the
disproportionate size of the latter. In addition, the growth prospects of
the filmed entertainment interests have now been greatly enhanced by the
refinancing of Ster Century Europe and the operating improvements at Ster-
Kinekor Theatres.
The proposed spilt will enable Filmco to deliver on these growth prospects
within realistic timeframes and provide Adco with the opportunity to
accelerate the unlocking of its growth opportunities. Adco will continue to
maximise the realisation of value from Primecom's one-to-one marketing
businesses.
1.4 Financial information
It is intended that detailed financial information and financial effects of
the proposed split will be provided at the time of the release of Primedia's
year end results.
1.5 Benefits of proposed split
The proposed split is considered to be in the best interests of the
businesses, as the proposed split will:
- allow the group to reorganise its capital structure to achieve the
strategic objectives of its distinct business activities;
- provide separate management focus in respect of each of the businesses
where the management disciplines are quite different;
- provide each entity with its own access to capital;
- facilitate Primedia's advertising businesses to strengthen their leading
market positions in South Africa and to use their cash flows to participate
in ongoing media consolidation; and
- facilitate the introduction of effective share option programmes in
respect of the employees of each entity.
As regards Primedia unitholders, the proposed split will:
- provide greater transparency to the different earnings streams as the
time period for maximising value in the filmed entertainment interests
differs from those of the advertising businesses, principally due to the
developmental stage of the group's international cinema exhibition interests
and the turnaround nature of Ster-Kinekor Theatres;
- provide Primedia unitholders with a choice as to the types of businesses
in which they wish to be invested;
- facilitate the enfranchisement of Primedia's 'N' units in that Filmco
will have one class of share; and
- enable Filmco to benefit in the event of a continued improvement in
valuation multiples being ascribed to cinema operators internationally
following industry consolidation, particularly in the United States.
1.6 Filmco
1.6.1 Business description
Filmco will comprise the following:
- the Ster-Kinekor group in South Africa which includes:
* Ster-Kinekor Theatres, South Africa's largest cinema exhibition operator
with annual attendances of 15 million;
* Ster-Kinekor Pictures, South Africa's leading film distributor; and
* Ster-Kinekor Home Entertainment, South Africa's leading video, DVD and
interactive games distributor;
- Ster Century Europe, which is one of the largest cinema exhibitors in the
UK and Europe. Primedia currently holds an approximate 50% interest in Ster
Century Europe, which will, after the introduction of a new shareholder and
the $80 million refinancing package, be reduced to 40,6%; and
- Ster Century Middle East, a developing cinema exhibition chain in the
United Arab Emirates, Jordan, Oman and Egypt. Filmco will own an approximate
45% interest in Ster Century Middle East.
1.6.2 Investment merits
Filmco's growth prospects are enhanced by the following:
- Ster-Kinekor Theatres will continue to benefit from operational
efficiencies which are currently yielding approximately R30 million of
savings per annum, as well as from the rationalisation of Ster-Kinekor
Theatres' under-performing sites which should increase profitability even
based on current attendance levels. Strategies aimed at the black and
Indian markets will provide further upside over the next three years;
- Ster-Kinekor Home Entertainment should continue to show good growth both
from its video business as well as from the exclusive distribution in South
Africa of Sony Playstation, the world's leading interactive games franchise;
- the refinancing of Ster Century Europe to the extent of $80 million will
enable the company to complete its rollout programme and realise its full
potential;
- Ster Century Europe's investment merits include:
* Ster Century Europe has 171 screens (15 multiplexes) up and running and
will open another 91 screens (8 multiplexes) by December 2003 with the
current annualised attendances of 12 million expected to increase to 20
million;
* unaudited turnover for the year ended 30 June 2001 was approximately $42
million being 123% up on the prior year;
* development costs are considered to have peaked for the following reasons:
- cinema operating profit before depreciation is expected to improve from
existing sites, which are showing year on year attendance growth, and from
new site openings; and
- overhead costs will reduce with the winding down of the intensive initial
developmental phase as 20 of the 23 planned multiplexes will be trading by
December 2001;
- Ster Century Middle East is well positioned with an anticipated continued
improvement in its first trading site and the opening of a further four
sites over the next year predominantly in the affluent United Arab Emirates;
and
- Filmco will have maximum flexibility to capitalise on corporate activity
in the cinema industry, particularly internationally, including the possible
acquisition of the other shareholders' interests in Ster Century Europe and
Ster Century Middle East in due course.
1.7 Adco
1.7.1 Business description
Adco will consist of the following:
Advertising businesses
- Primedia Broadcasting, South Africa's most successful independent owner of
commercial radio stations, operating 94.7 Highveld Stereo and 702 Talk Radio
in Gauteng, and 567 Cape Talk in the Western Cape;
- Primedia Outdoor, South Africa's leading outdoor advertising contractor;
- Cinemark, South Africa's only provider of cinema advertising;
- Primedia Direct, incorporating South Africa's leading direct-to-home
distributor, Direct Response Marketing, and customer insight services
provider, Intact Solutions;
- Primedia Specialist Marketing, comprising:
* Comutanet, South Africa's pre-eminent operator of mobile media products
and services covering taxis, buses and trains;
* Primedia Sport, South Africa's leading sports marketing company;
* Product Marketing Services, which provides marketers with opportunities
through alternative media to reach black consumers in township and rural
markets;
* CartAd In-store Media, the country's leading instore media company
operating in South Africa's major retail chains;
- Primedia Publishing, one of South Africa's largest specialist magazine
publishers;
- iafrica.com, South Africa's leading internet portal;
- a 40% interest in Kaiser Chiefs, South Africa's premier soccer club, which
is considered to be a strategic investment; and
One-to-one marketing services
- Primecom, a one-to-one marketing services provider in the UK, with
businesses in on-line communication services, database and relationship
marketing and direct marketing fulfilment.
1.7.2 Investment merits
Adco's growth prospects are enhanced by the following:
Advertising businesses
- most of the businesses are leaders in their industries with significant
scale;
- the businesses deliver good margins and excellent cash flows, which can
fund ongoing growth;
- Adco will become a focussed vehicle for enhanced black economic
empowerment which will enhance the companies' prospects for new media
rights, as well as facilitating the ultimate enfranchisement of Primedia's
'N' units;
- there is a good balance of earnings between the various businesses;
- an improved outlook is predicted in advertising expenditures; and
- media consolidation should provide further growth opportunities;
One-to-one marketing services
- Primecom's businesses are leading players in their sectors; and
- further value could be unlocked through ongoing corporate activity.
1.8 Approvals and Timing
The proposed split will, inter alia, be subject to:
- unitholder approval;
- finalisation of the appropriate capital structures for each entity; and
- relevant regulatory and other approvals.
It is intended that a further update on the mechanics and timing of the
proposed split will be provided at the time of release of Primedia's results
for the year ended 30 June 2001 which is expected to be published before 30
September 2001.
2. Refinancing of Ster Century Europe
As contained in the accompanying joint announcement, Primedia will provide
$10 million of the $80 million financing for Ster Century Europe, resulting
in Primedia's effective interest in Ster Century Europe diluting from
approximately 50% to 40,6%. Primedia will continue to exercise joint control
over Ster Century Europe. The refinancing will ensure Ster Century Europe is
fully financed to achieve its long term potential.
3. Conversion of debentures
In line with Primedia's objective of simplifying its capital structure, the
Board has resolved to propose to unitholders, subject to the resolution of
the efficient structuring thereof, that the debenture portion of Primedia's
combined units effectively be converted into equity. It is intended that the
method in which this is to take place and the financial effects thereof will
be contained in the announcement of Primedia's results for the year ended 30
June 2001 which is expected to be published before 30 September 2001.
The conversion of the debentures will in any event not impact on the
debenture interest payment for the 6 months to 30 June 2001.
4. Cautionary announcement
In view of the proposed split, unitholders are advised to exercise caution
in dealing in their Primedia units until a further announcement is made.
18 July 2001
Sandton
