The restructuring of financially distressed media businesses continues apace in SA, with the Mail & Guardian the latest to undergo efforts to stave off the worst-case scenario of business rescue.

The board of M&G Media, which owns the Mail & Guardian, is seeking approval from its shareholders for the media business to undergo a debt and equity restructuring process, which would see more capital being injected into the business to put it on the path of solvency.

Trevor Ncube at the Mail & Guardian offices in 2017. (Photo: Wikimedia Commons / Naeem Mayet)

The plan was initially announced on 12 December 2017 and two years later, it is still in the offing. “The company is in the process of finalisation of the transaction and completing all the statutory requirements to give effect to the transaction,” said M&G Media CEO Hoosain Karjieker, adding that getting regulatory approval for the transaction delayed its conclusion.

Business Maverick is in possession of a circular to M&G Media shareholders dated 20 December 2019, which indicates that the Mail & Guardian’s rescue efforts are driven by its two largest shareholders, prominent newspaper publisher Trevor Ncube (holding 77.5% of M&G Media ordinary shares) and New York-based non-profit organisation Media Development Investment Fund (MDIF), which holds 10%.

Like its traditional media peers, the Mail & Guardian’s profitability has been under pressure due to readers migrating from print to digital platforms and due to declining advertising on platforms, which is still the main source of revenue for media businesses in SA.

According to a report that values M&G Media’s assets, which was prepared by corporate finance firm Merchantec Capital and accompanies the circular to shareholders, the company has a negative net asset value of R20.5-million, making it technically insolvent. In other words, M&G Media’s total liabilities exceed its total assets by R20.5-million.

Business rescue

M&G Media considered voluntarily submitting itself to business rescue, which is provided for by the Companies Act and attempts to rehabilitate financially distressed companies by restructuring their operations. But the company abandoned this option on the advice of its lawyers as it “was considered to be value destructive and also prejudicial to the future of the company”.

“Considering that the company (M&G Media) is a large media house that plays an important and critical role within the South African political and economic landscape, its collapse into business rescue or liquidation will result in numerous employees and journalists losing their jobs,” the circular to M&G Media shareholders reads.

Instead, a restructuring plan that will see MDIF take majority ownership of M&G Media from Ncube, who took control of the company in 2002, has been proposed. MDIF, which has invested in more than 100 independent publications in 39 countries, has a history with M&G Media dating back to 2003 when it extended a loan to the local media company.

Overhaul of M&G Media shareholding structure

Under the restructuring plan, MDIF will subscribe for more M&G Media ordinary shares, increasing its shareholding from 10% to 62.5%. Ncube’s shareholding will reduce to 25% from 77.5% and the remaining shares will be owned by a staff share trust and minority shareholders, holding 10% and 2.5% respectively. The plan also envisages Ncube selling all his shares to M&G Media’s Karjieker and resigning as a director of the company. Ncube was not available to comment on the transaction. But Karjieker confirmed that Ncube resigned as a M&G Media
director in December 2017.

According to the 20 December 2019 circular, M&G Media shareholders will be invited to a general meeting only on 21 January 2020 to discuss and vote on the proposed restructuring.

To effect the restructuring, the shareholding structure of M&G Media will be overhauled. M&G Media ordinary shares will be converted from having a valuation of one cent per share to having no value; the authorised ordinary share capital of the company (the number of shares issued by a company), will be increased from 600-million shares valued at one cent per share to 2.5-billion shares with a zero value. It is unclear if MDIF has agreed to take up more M&G Media shares, which don’t have a value, with the promise of injecting more capital into the business.

M&G Media will no longer have a preference shareholding structure, a structure that ensures shareholders to be first in line for dividend payments and debt claims before ordinary shareholders. MDIF is M&G Media’s only preference shareholder, holding 100% of these shares.

M&G Media shareholders, mainly the staff share trust and minority shareholders, will also have to weigh up a mandatory offer from MDIF to purchase their shares. Because MDIF’s shareholding under the restructuring will pass the 35% threshold, the Companies Act requires it to make a mandatory offer to purchase their shares for one cent per share.

There are a number of original owners who are mystified because they haven’t been informed about the meeting. BM

Editor’s Note: This story has been modified to clarify that the deal was first announced in 2017.