Irish Chain Makes A Move In South Africa p. 12

By: Robert O'Connor Buys 31% of Argus, the country's largest newspaper publisher sp.

POLITICAL CHANGE IN South Africa has provided a major opportunity for Ireland's Independent Newspapers.
The company has bought 31% of Argus Newspapers, South Africa's largest newspaper publisher, which is controlled by the mining giant Anglo American Corp.
The deal is expected to cost Independent about $28 million.
It will be carried out in stages, beginning with the listing of Argus on the Johannesburg Stock Exchange at the end of May. Thirty-one percent of the stock will be bought by Argus' present owners, Anglo American and Johannesburg Consolidated Investment Co., and sold to Independent at the average price of the stock during its first 20 days of trading.
The transaction should be completed by mid-July.
"We feel quite positive about the whole situation here," Independent's finance director James Parkinson said in a telephone interview from Johannesburg. "It's a tremendous opportunity to get into a major newspaper group."
Independent chairman Tony O'Reilly, Ireland's best-known businessman, also is chairman and president of Pittsburgh-based H.J. Heinz Co.
O'Reilly is well-known in South Africa as well. He still is remembered there as the international rugby star who toured the country in the 1950s. And Heinz has extensive activities in nearby Zimbabwe.
Parkinson said Independent has had an eye on South Africa for a number of years and almost made a deal with Anglo American a couple of years ago.
O'Reilly "has always been very impressed with South Africa as a place to invest," he added.
The deal makes sense for Anglo American, which, through its shareholdings in Argus and the Times Media group, controls the two largest English-language newspaper companies in South Africa.
A new government might have decided to launch anti-monopoly proceedings against such a concentration of media ownership.
Argus publishes South Africa's leading daily newspapers, including the Johannesburg Star, Cape Town Argus and Durban Natal Mercury. Total weekly circulation is more than 4 million. Last year, Argus had revenues of about $194 million and pretax profits of about $16 million.
Argus Newspapers chief executive John Featherstone described the ownership pattern of South Africa's English-language press as "unique in the Western world." At a time of political change, he said, "clearly, something had to be done. Anglo American perceived that as had other commentators perceived it."
Featherstone said Anglo American long had sought ways to reduce its stake in the press.
"We were looking for a credible overseas investor," he said, adding that O'Reilly "is more than credible. He has an extremely good reputation and has the same sort of approach to newspapering that the Argus newspapers have."
While other possible purchasers were "spoken to," Featherstone said, "negotiations were done almost exclusively" with the Independent.
At a time of transition, O'Reilly showed a greater understanding of South Africa and "was more clearly aware of the opportunities than others were," he added.
Featherstone said the deal has been well received by Argus employees, who believe that a strong foreign presence will bolster press freedom.
On the broader level, he cited a "keenness" within South Africa for a return of foreign capital.
"Multinational companies add to the skills that an emerging company like South Africa has," he said.
"They've bought in there on pretty good terms," Joe Burnell, a media industry analyst at Davy stockbrokers in Dublin, said of Independent's investment. "They're paying about 50? of turnover and six times profits historically."
Burnell said that Argus' profit margins, at about 7?, also show scope for growth. "They are well below the levels the Independent is used to," he observed.
Davy is stockbroker to Independent but was not involved in the Argus deal.
The African National Congress is known to have favored the Independent-Argus deal.
"I think soundings would have been taken, and they wouldn't have been averse," Parkinson said. "They would have been the people who wanted Anglo to open up the English-speaking press here."
Parkinson believes Independent's status as an Irish company made it more acceptable in South Africa.
"Irish people are quite good mediators," he said. "We're not coming from a major country seen to be more intimidating. We don't have an ax to grind on the global political front, as anyone coming from a major economic power is perceived."
Burnell said the necessity that the purchaser be widely acceptable had effectively narrowed the range of outside participants.
"I think it was important that the ANC were prepared to give it the nod," he said. "That's the reason that they may well have got it ahead of some other high-profile newspaper proprietors."
While the political change smoothed the deal, Independent did not see such a shift as a necessity, Parkinson said, commenting, "We would have been interested whether or not the political change came about."
Parkinson is optimistic about the future of South Africa. Despite recent random violence, he expects the establishment of a new government to bring stability.
"There are so much natural resources and wealth here that it's different to the more northern African states, where the transition from white power to black power was much more difficult," he said.
"There is a greater awareness of mistakes that were made elsewhere and a sense that whites and blacks have to work together to make a better future for everyone."
Parkinson expects South African exports to grow as the country overcomes the effects of sanctions.
"Labor here is reasonably priced," he said. "I think there is an opportunity for the economy to grow at fairly significant rates over the next three to five years."
Parkinson said the Argus newspapers have strong market penetrations, with good prospects for growth, particularly as literacy rates improve.
He said South Africa "is one of the few places in the world where we should have increasing circulations of newspapers over the next ten years."
Independent has about 5% of its capital tied up in the South African deal.
"If it went absolutely, totally sour, it would be a setback, but not a major setback." Parkinson said.
The company has no plans to bring in editorial executives.
Independent, whose daily and Sunday papers dominate the Irish newspaper market, is an aggressive overseas investor. It has made unsuccessful runs at the Fairfax newspaper group in Australia, the Mirror Group in Britain, and the Independent, a British national daily, of which it owns about 30%.
The company also has a stake in an Australian newspaper chain, advertising businesses in Australia and France, and newspaper holdings and recruitment advertising interests in Britain.
Burnell called O'Reilly "the man behind the international strategy. He certainly has a major say in the direction the company takes."
In Ireland, Independent is building a large cable television business. It also has succeeded with an Irish edition of the Daily Star, a British tabloid.
In Britain, the Daily Star is at the cruder end of the tabloid market. The Irish version, with mainly local content, is a much softer product, with a heavy emphasis on sports. It sells more than 60,000 copies a day.
The Independent newspapers, particularly the Sunday Independent, often are dismissed by critics as froth, full of show biz tittle-tattle and endlessly recycled examinations of Irish sex mores.
Last year, the Sunday Independent was condemned from all sides when it ran an interview with the runaway Catholic bishop of Galway, who was hiding in Mexico after being identified as fathering a son. The bishop convincingly denied that he had given an interview to a reporter for the paper.
?( O'Connor is a free-lance writer) [Caption]


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