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TIME TO SET ‘E’ FREE

Would listing of e.tv placate Marathon?
Well done to London-based Marathon Asset Management for sticking to its guns in doggedly resisting the delisting of Hosken Consolidated Investments (HCI). The proposed delisting is still subject to court proceedings, making for rather an inconvenient situation with the empowerment group still having to produce financial results twice a year.
Its probably more a case of embarrassing than inconvenient as each reporting period closes with HCI looking very much a value-laden contender – nothing like the mumblings about develop risks spouted during the 350c/share buyout offer to minorities in 2003.
Shareholders who bailed out of HCI last year will no doubt find developments at free-to-air television station e.tv most interesting – e.tv, in which HCI holds 66%, appears to have generated R620m in revenue for R32m at bottom line.
If HCI were relisted now, would the market still mark the shares down to well below asset value? Or would the remarkable maturation in e.tv’s operations under the auspices of Marcel Golding from cash guzzler to cash producer put a premium on the shares?
Currently, e.tv comprises nearly 300c of HCI’s net asset valuation (NAV) of 645c/share which clearly calls into contention the basis for the original buyout offer pitched to minorities.
With most of e.tv’s programming US-dollar based, there seems very little reason why the free-to-air cannot extend its profit performance, especially if the rand holds at current levels.
HCI’s other interests are not chicken feed either. There’s the majority stake in specialised financial services group, Mettle, the promising 96% holding in Vukani Gaming and its 14% interest in Tsogo Sun, as well as the recent acquisition of Golden Arrow Bus Services for R250m.
Though HCI’s abridged balance sheet doesn’t break down current assets, its cash flow statement shows cash at the end of its financial period at more than R400m. With cash flows from operations reflected at almost R300m, there should be scope for a meaningful dividend in the near future – notwithstanding substantial acquisitions such as Golden Arrow.
If anything, Marathon has now justified its earlier contention in FW (14 January 2004) that HCI’s true value was closer o 650c/share. No doubt Marathon’s resistance to HCI’s delisting has not been tempered. Subsequently, one wonders what could transpire in the (unlikely) event that a High Court ruling favours the asset manager.
Perhaps one left field option is for HCI to consider unbundling or separately listing the profitable e.tv, a development that could contain a fundraising clause to bring on board new shareholders and possibly placate Marathon. As an asset manager, Marathon cannot be comfortable with holding shares in an unlisted entity, and a listing of e.tv would at least ensure access to a market-traded instrument.
It does seem that Marathon bought into HCI on the strength of future prospects for e.tv and it may seem a listing of e.tv as one way of parting ways with HCI without giving up too much of the underlying value.
Whether VenFin – e.tv’s other major shareholder and primary funder during its formative years – will support such a move is another story entirely.
Over the longer term there might well be an argument for listing e.tv, but prudent minds (like VenFin) may argue that more value should become apparent before taking the TV station to market.

Source: Marc Hasenfuss – Finance Week (12-16 July 2004)