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JSE intervention forces Novus, Media24 U-turn

Renewed focus on Naspers control structure expected.

The share price of Novus Holdings fell 3.68% to R7.85 on Tuesday after the JSE instructed the company to reverse its announcement in January regarding crucial printing contracts with Media24.

The company also issued a trading statement warning that its earnings per share for the year ended March 31 might fall by between 42% and 45% and its headline earnings per share by between 20% and 23%.

The JSE on Thursday confirmed to Moneyweb that it was investigating “unsound governance of a breath-taking nature” as alleged by Charl Kocks, governance expert at Ratings Afrika.

Kocks on Wednesday welcomed the JSE interventions, but also called for sanctions against the responsible Novus and Media24 directors.

Kocks on April 18 alleged that Novus failed to disclose before the company’s listing in March 2015 that 31% of Novus’ revenue was dependent on the life of its non-executive director Lambert Retief. The 31% relates to exclusive printing contracts with Media24, which according to Novus currently represent 25% of company revenue.

Retief passed away in January and Novus then informed the market that the company’s Restated Management Agreement with Retief had come to an end as a result. It added: “Media24 thereby has the right to terminate the existing contractual printing agreement with Novus Holdings on six months’ written notice. Novus Holdings and Media24 are currently engaged in negotiations around the renewal or extension of the printing agreements and are in the process of finalising new terms.”

Novus in April announced that it has reached in principle an agreement with Media24 and would announce further detail in due course.

On Tuesday Novus made a U-turn, stating: “Contrary to the January Announcement, Media24’s and Novus Holdings’ respective rights and obligations under the Restated Management Agreement remain in effect, in accordance with the terms of the Restated Management Agreement.”

Novus continues to state that according to the parties’ interpretation the fact that Retief ceased to be a party to the Restated Management Agreement gave Media24 the right to terminate the printing agreements. “However, Media24 has not terminated and has subsequently waived, without derogating from any of its other termination rights, any right that it may have had to terminate” the printing agreements following Retief’s death.

The Restated Management Agreement and printing agreements therefore remain in effect “on the terms as disclosed in Novus Holdings’ pre-listing statement”, the company said on Tuesday.

This is exactly what Ratings Afrika called for as “the only course of action in these circumstances that would be fair to the company and its shareholders, given the grossly inadequate disclosure in respect of this agreement in the PLS (Pre-listing statement).”

Andre Visser, general manager of Issuer Regulation at the JSE told Moneyweb its main objective in this matter is to ensure that investors have the correct information pertaining to the agreements.  “After engagement with the company and their sponsor the JSE instructed the company to release a Sens announcement to clarify the position. This has now been done and the company has released a Sens announcement to state the correct facts.”

Kocks however says Ratings Afrika’s concerns regarding the original content of the PLS and the possible lack of veracity on p57 of that statement, still remain.

“We hope that the directors of Novus Holdings and of Media24 who were jointly responsible for the PLS being issued with this shortcoming and subsequently allowed the indication of termination of the agreements on some interpretation that is difficult to comprehend, will acknowledge their error and be subjected to sanction. The unsound governance should have been averted at that level and possibly even above” he says.

According to Visser there is now a separate process between the JSE and the company to determine whether any further action is required by the JSE.

He said until the JSE has finalised its process, it is premature to comment on any sanctions against Novus.

Kocks says Ratings Afrika also remain “extremely uncomfortable about the background to this whole matter, and indeed the whole listing of Novus Holdings.” He refers to “a number of recorded relationships and actions that are disconcerting because they do not seem coherent commercially and legally. We do not regard the proposed unbundling of the Media24 and Naspers group shareholding in Novus Holdings to provide a resolution of these concerns”, he says.

The background to the transaction Kocks refers to will be under the spotlight again in June before the Competition Tribunal when the Competition Commission will recommend the approval of the Novus/Media24 merger on condition that Media24 divests its majority stake in Novus to retain only a 19% stake.

Novus has earlier announced that if the Tribunal approves the merger, Media24 will unbundle its shareholding to shareholders of Naspers, its ultimate holding company

Caxton chair Paul Jenkins has confirmed to Moneyweb that the company will apply to intervene in the proceedings.

The companies filed the merger application after being ordered to do so by the Competition Appeals Court following an application by Caxton, a competitor of both Novus and Media24.

Caxton in 2014 intervened in an earlier Novus/Media24 merger filing and raised concerns about the effect of the merger between “the biggest publishing company with the biggest printing company” in South Africa on competition. The merger was aimed at facilitating the sale of Retief’s holding in Novus as he approached retirement.

Caxton at the time alleged that Naspers did not properly disclose its control structure.

The parties then withdrew the merger filing and proceeded to list Novus. Caxton tried to interdict the listing at the Competition Tribunal arguing that the parties had to first file a merger, but was unsuccessful. It appealed the decision and was vindicated when the Competition Appeals Court later ordered the merger notification that will serve before the Tribunal in June.

Jenkins told Moneyweb that Caxton is currently preparing its filings to the Tribunal which will again put the spotlight on the Naspers control structure.

*Caxton is the majority shareholder in Moneyweb.

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Huh?!?!? “……Novus’ revenue was dependent on the life of its non-executive director Lambert Retief.”
Now, that’s some great business strategy right there!

Indeed – chickens coming home to roost….

End of comments.

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