Primedia latest PE target

11 January, 2007 at 10:10 am | Posted in Companies | Leave a comment

Radio broadcaster and cinema chain owner Primedia has emerged as the latest candidate for a private equity deal.
The group issued a cautionary announcement yesterday advising shareholders that the controlling shareholders had been approached by a consortium of investors in a move that could lead to delisting.

The group’s share price firmed R2 to close at R22 yesterday. Ahead of any proposed transaction, Primedia has a market capitalisation of just more than R5.3 billion. Although the group issued a cautionary announcement on December 15, referring to discussions that could affect the share price, yesterday’s announcement appears to have taken the market by surprise.

The announcement said the talks with the consortium could “lead to the delisting of Primedia and the restructuring of certain of its operations into a new listed entity”. Sources familiar with the deal speculated that the restructuring and creation of a new listed entity was likely to occur at the same time as the delisting of the old entity.

This is an unusual twist for a private equity transaction, in that assets acquired in these deals generally return to the market only years later. Given that the key objective of private equity transactions is to get control of cash-generating assets, and given the attractiveness of 94.7 Highveld Stereo – the group’s most profitable asset and a strong cash generator – analysts said yesterday that the deal would result in Highveld becoming the key operation in the unlisted entity.

By controlling Highveld Stereo, the parties behind the proposed deal would be able to use its cash flow to fund the private equity transaction. The group also owns Talk Radio 702, Cape Talk, cinema chain Ster-Kinekor and Primedia Outdoor, the group’s billboard advertising arm. It is unclear at this stage which of these operations will be included in the entity to be listed.

In what is regarded as a significant comment in the light of the controversy surrounding the proposed private equity deal at Shoprite, yesterday’s cautionary from Primedia said the deal would be “subject to board approval and approval by non-interested shareholders”.

This suggests that if the current controlling shareholders, the Mineworkers Investment Company and the Kirsh family, are participating in the private equity leg of the proposed deal, they will not be allowed to vote their shares. These two parties control Primedia with 50 percent of the votes.

William Kirsh would not comment on the cautionary announcement yesterday, but did confirm that if the controlling shareholders were on both sides of the transaction, they would not be able to vote.

He said the proposed transaction was not connected with Primedia’s bid to acquire a 24.9 percent stake in Kaya FM – currently the subject of a competition tribunal hearing.

At the group’s annual general meeting last month, Kirsh said the board’s strategy of having a diversified base of advertising and content businesses continued to underpin the group’s performance.

For the four months to October 2006, the group achieved a 15 percent increase in revenue from continuing operations.



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