After an 18 month slide which saw its share price drop from 4700c to 590c, one-time market darling Primedia has been staging a comeback. In the last six weeks the stock has jumped 63% to 965c, with strong buying demand apparent at this level. Talk in the market is that the biggest of the independent media groups is “in play” with a figure of 1200c a share being mooted as the takeout level.
This week’s mega-deal between US giants America Online and Time-Warner, together with substantial re-ratings of the dominant local players Naspers and Johnnic, has brought new focus to the local media sector. Much of it revolves around the role of South Africa’s leading cellular phone service provider Vodacom, a key piece in any media convergence puzzle.
Rembrandt Group chief executive Johann Rupert is believed to be the man driving the formation of a third media power bloc with the group’s international operation Richemont (the JSE’s second most valuable listed group behind Anglo American) tipped as the vehicle. Rupert has made no secret of his desire to become more involved in the media sector and has learnt some hard lessons already through deals in the European Pay-TV arena, a legacy of which is Richemont’s equity involvement in France’s Canal Plus.
The 13,5% which Rupert’s group owns in Vodacom is a powerful asset. Securing in a partnership the further 5% owned by HCI, the second probable player in this new media bloc, would effectively shut out anyone else from the Vodacom environment. HCI brings a whole lot more than its Vodacom stake to the party, though. It controls some of the most attractive media interests in the country, but for now lacks the funds to develop them to their full potential.
HCI has effective control of South Africa’s only licensed independent television station, e-TV. In his comments accompanying the interim results which were published just before Christmas, HCI chairman Marcel Golding bemoaned the financial non-performance of fellow shareholders who own 45% of e-TV, an investment that he’s confident will perform well in the medium-term.
More significant in terms of my argument, Golding disclosed that HCI is looking for “a financial partner in this business to meet some of the obligations of the non-performing shareholders.” Considering their existing link through Vodacom link and the undeniable financial muscle it possesses, Rembrandt looks like a perfect partner. A deal between HCI and Rembrandt that starts with e-TV, could be the catalyst for some obvious next steps to create a media grouping capable of challenging the existing champions.
HCI’s large equity stakes in Primedia-run radio stations Highveld Stereo (HCI: 51%) and Cape Talk (45%); together with its 40% of youth radio station YFM, would give the new group an immediate stake in radio. Bring in Primedia itself and apart from rounding out the radio side with 702 Talk Radio, its much maligned movie operation Ster Kinekor takes on new meaning when housed together with e-TV. Also relevant is the new grouping would have the pick of many media assets put together in the past four years during Primedia’s acquisitive streak. These range from print, outdoor and Internet interests through to 40% of soccer club Kaizer Chiefs.
All of this, for the moment, is pure speculation. But it makes good sense, doesn’t it? The chemistry between the role players – Rupert, Golding and Primedia’s William Kirsh – is good. What’s more, all three are widely travelled and obviously aware of the global media trends toward consolidation. They know, too, that that the longer it takes for a third major player to emerge, the more of an advantage for Naspers and Johnnic in the race to embrace the few attractive media assets which remain independent.
Best course of action? Even after rising from 590c to just below 1000c, there is still some upside in Primedia. But the most attractive option must surely be the asset rich and deeply discounted HCI, which trades 20% below the value of its Vodacom stake alone. And for the more conservative investor, the possibility of becoming a major media player makes Remgro and Richemont even more attractive in their traditional roles as cornerstones of long-term portfolios.

Source: Moneyweb – Alec Hogg