Johnnic`s shareholders at the crossroads
September 21, 2004
By Ann Crotty
Johannesburg - Johnnic shareholders are in a position that is reminiscent of Nail`s situation in the years of uncertainty that finally ended with the controversial bid by the Tiso Consortium.
The essence of that bid was a very clever plan to strip the assets out of Nail and on-sell them to various interested parties, most of whom were members of the Tiso Consortium.
During this process a considerable amount of value that had been locked up in the Nail structure was realised. The long-suffering Nail shareholders received some benefit from this realisation, as did the members of the Tiso Consortium.
A similar move on Johnnic would be far less complicated because Johnnic`s assets are primarily its 62.5 percent stake in media group Johncom, some property, MTN shares and cash.
The options facing Johnnic, unlike Nail, appear to be reasonably straightforward given the listing requirements, in terms of which Johnnic will have to buy additional assets or delist.
If an empowerment consortium led by Cyril Ramaphosa, Mashudu Ramano and Phuthuma Nhleko is able to secure the necessary financial support to take a controlling stake in Johnnic and to fund the purchase of additional assets, then Johnnic could maintain its listing and its status as an empowerment firm.
This would be good news for Johncom, which has growth ambitions that will require it to have an empowerment profile.
It would also be good news for Caxton, which is 35 percent held by Johncom and relies indirectly on Johnnic for its empowerment profile.
But reports of a strain in the relationship between Ramaphosa, Ramano and Nhleko suggest that putting together an empowerment deal will be problematic.
Potential funders of such a deal are believed to be frustrated by the continuing underperformance of Johnnic as an investment and will be extremely reluctant to continue or, in some cases, to assume an exposure on this front.
Although the prospect of a well-backed Johnnic might be good news for empowerment, the long-suffering shareholders might prefer to see an orderly winding up of the Johnnic pyramid. This would enable them to receive the value that is currently locked in the Johnnic structure.
If some action is not initiated by the shareholders themselves, such as tabling a resolution to this end at the forthcoming annual general meeting, there is a possibility that a consortium of interested parties will make a bid for Johnnic.
This would be similar to, but less complex than, the strike on Nail by the Tiso Consortium.
For Johnnic shareholders the advantage of a third party making a bid for Johnnic is that it would put an end to a drawn-out period of uncertainty.
The disadvantage is that they will have to share some of the profits that will be unlocked in the subsequent unbundling of Johnnic.
There would then be the complication of dealing with regulatory authorities such as the Independent Communications Authority of SA and the competition commission and tribunal.
But on that score, the Tiso Consortium has established a useful precedent.
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