| Tue 20 May 2003, 17:09 | | Johnnic has to decide how to unlock value |
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JSE gives firm six months to address problem
Consumer Industries Editor
NOW that it has finalised the unbundling of its shares in telecoms giant MTN Group, Johnnic Holdings has six months in terms of JSE Securities Exchange SA regulations in which to address a problem that has hung over it for several years.
How will the company unlock the remaining value in the group, and particularly the value that is lying dormant in listed media and entertainment group Johnnic Communications (Johncom), in which Johnnic holds a 62,5% stake?
Whatever route Johnnic decides to take, it must take into account the National Empowerment Consortium (NEC), the black empowerment group that exercises about 30% of its votes and continues to be well represented on Johncom's board.
The NEC has more clout on the board of Johnnic as a result of a voting pool agreement than its financial holding, which is only about 8%.
Johnnic's market capitalisation is about R8,2bn of which about R7,1bn represents MTN shares that are about to be unbundled to Johnnic shareholders in line with an announcement made last week. A further 40-million MTN shares, worth about R550m, remain in Johnnic to cover commitments.
It also holds, with partners, about 40% of the R1,4bn Sun Coast Casino in Durban, worth about R600m, while the property value of its conference centre, Gallagher Estates, is on its books at R170m.
Despite the fact that Johncom's value is not reflected in Johnnic's share price, Johncom's market capitalisation is about R1,5bn. Analysts have suggested its true asset value is about R2bn, R600m more than its book value of R1,4bn.
This is due to the fact that the intangible assets are not fully reflected on the balance sheet, and because it is thought to trade at a discount due to negative investor sentiment towards technology, media and telecoms companies. That implies one of Johnnic's options would be to make an offer to Johncom minorities while the share price is low.
It would cost Johnnic about R567m to make such an offer at Johncom's current share price of R14,50, but a premium would be needed to sweeten the offer.
Then one of the listings would be abolished as Johnnic effectively becomes Johncom plus the property and casino assets, and the group would retain Johnnic's current shareholding structure.
This method is criticised by some analysts as not unlocking any value and as too complicated.
A second route would be for Johnnic to distribute its Johncom shares to its shareholders on a pro rata basis and sell the other unlisted assets.
But since that would dilute the NEC's stake in Johncom, it would have to be accompanied by an arrangement to increase Johncom's black empowerment holding.
A third option is for Johnnic to sell off its assets, including Johncom, to third parties. Moves to attract buying interest for Johncom were abandoned earlier this year when there were no acceptable offers.
But analysts say Johncom's discount to real net asset value has widened in the last few months, indicating a lower offer could be considered, particularly if it were from a black investment group.
The problem is that few black investor groups have more than R1bn available for investment. But the Public Investment Commissioner, the government pension fund body, has just financed a black empowerment group's purchase of 25% of Investec, and the commissioner is already a 10% shareholder in Johnnic, forming part of the NEC voting consortium. With its resources it is an obvious funder for a black empowerment deal involving Johncom, if it wished.
Apart from the necessity of protecting Johncom's black empowerment shareholding, Johnnic has to ensure there are no significant negative tax consequences to its actions, analysts say.
May 20 2003 06:59:14:000AM Charlotte Mathews Business Day 1st Edition
