Rupert is not buying Caxton

Port Elizabeth - The circular that outlines the transaction between the Remgro-led Bidco and Element One will be published within the next few days – and it’s likely to disappoint investors and people who expect that billionaire Johann Rupert and Remgro are planning to buy Caxton and CTP Publishers & Printers (JSE: CAT) and start a media empire.

Reports to the effect that Remgro and its ally Rand Merchant Bank (RMB) is buying Element One in a transaction of R2.3bn are simply wrong.

Yes, a consortium that includes Remgro and its ally Rand Merchant Bank (RMB) is busy with a R2.3bn transaction with Element One - whose only asset is an effective interest of 39.3% in the Caxton - but the acquisition of the Caxton shares from Element One's shareholders will largely be settled with the same Caxton shares that Element One currently owns.

The whole transaction is little more than an unbundling of Element One's existing Caxton shares to its shareholders. 

Terry Moolman, founder and chairperson of Caxton, will remain the majority shareholder of the group and will own just more than 50% of the shares after the reshuffling of the shareholding once he swops his Element One shares for Caxton shares.

The free float of shares available for other investors to buy and sell in the market will increase from around 25% to 45%. Remgro will end up with very little additional shares, if any.

Element One has announced a few months ago that it intends to unbundle the Caxton shares to its shareholders to unlock the discount at which Element One trade over-the-counter compared to its real value.

Element One also traded at a huge discount when it was listed on the JSE and directors decided to delist the company and look for ways to unlock this hidden value.

Element One's announcement of its intentions to unbundle the Caxton shares caught the attention of the clever investment bankers at RMB, renowned for finding solutions to difficult financial transactions. They came up with the new proposal to unbundle Element One's complex holding structure and the latter put its own plans on hold to look at these proposals.

There are lots of different companies within Element One owning different parcels of Caxton shares. Over the last few decades, bizarre cross-holdings evolved between the different companies. It involves both listed and unlisted shares.

Danie Vlok, CEO of Element One, told Fin24 that RMB came up with a solution to unlock more value and solve the problem of the unlisted Caxton shares. "There is no change from an operating and ownership point of view."

It seems that Remgro's role is more to facilitate the transaction, rather than an active desire to enter the SA media industry with all its might. RMB and Remgro will earn a nice return on their efforts, while increasing the value to existing shareholders such as the investment managers Allan Gray (29%) and Coronation (20%).

It would have been interesting if Remgro had bought a big stake in Caxton and decided to throw all its media assets into one group. Remgro already owns sizeable interests in a vast array of media companies.

This includes 1.7% of Caxton. It holds an interest of nearly 32% in Sabido (owners of amongst others e.tv, eNews Channel Africa and Yfm). Currently, e.tv has the highest number of television viewers after SABC 1. Recently, e.tv launched an online television channel to broadcast over the internet.

Remgro also owns part of Kagiso Tiso Holdings (KTH) and Rupert saw its effective interest in Kagiso Media double a few weeks ago when KTH acquitted from minority shareholders the 48% of Kagiso Media it did not own.

Kagiso Media owns interests in 6 radio stations, other businesses that produce and sell digital content and television programmes, including the well-known Urban Brew television studio. It also includes a host of businesses focused on producing content for the internet.

Remgro's other media interests include interests in companies that distrubute broadcasting content and programmes inside and outside SA. An interesting asset is a shareholding in Vision China, a company that sells advertising space in China's subways and busses.

Another eye-catching business is Remgro’s stake in Ad:Dynamo, hidden in the now unlisted iVenfin.

Ad:Dynamo is an online, instantaneous, contextually-relevant, advertisement delivery system and network which routes advertisements to people while they are using the internet. It offers advertisers and publishers (i.e. website owners) an alternative to the market’s dominant player in this industry, Google AdSense.  Ad:Dynamo is gaining market share worldwide.

Adding all these interest together with Caxton, which is listed and has a market value of some R12bn, would create a big media group. e.tv alone is worth probably around R20bn. Maybe Rupert and Moolman should go and play a few rounds of golf together.

- Fin24