My UNDICTATED column in Business Day this week stirred some very powerful pots. And reminded me that everyone is entitled to change their mind. Especially elephants. And especially about stuff said in, erm, convivial surroundings.
Richemont chairman Johann Rupert says my take on his relationship with Naspers’s Koos Bekker is “devoid of any truth”. Bekker as ever was more polite but equally forthright with a backhanded compliment that although “you often hit the nail on the head, you got this one wrong.” Click on the links to read their letters.
Both say they’re friends. That they parted ways in 1997 because the Nethold partnership was made a good offer. And that they did brilliantly from the sale. Seems all that supposed bile over Richemont selecting Canal+ and torpedoing Naspers’s desired partnership with DirecTV is also a figment of mischievous imaginations. Or long forgotten.
So I wasted a weekend reading through a decade of annual reports and a bunch of old articles. Nice.
All this bonhomie, though, will make me an even keener observer of the real thrust of the piece. Borrowing from a tweet by The Star’s chief sports writer Kevin McCallum, I’ll be grabbing my popcorn and taking a good seat. Watching developments unfold in the fields that really matter. The marketplace. And the stock market.
Multichoice is virtually a sole supplier in Africa’s PayTV market. It is the key profit driver for Bekker’s Naspers, propelling the group’s share price into the stratosphere. It is also where the group’s vulnerability now lies. At least in my opinion. Mr Market clearly disagrees. Despite the emergence of what is a dangerous disruptor, Naspers’s share price rises ever higher.
Sabido, of which Rupert’s Remgro owns just under a third, launches OpenView HD next month. It has all the features of becoming the first serious threat to Bekker’s cash cow. In the local beer context, it’s like when Heineken came to challenge near monopolist SABMiller. OpenView is promising free Satellite TV, starting with an initial 15 channels. It has also signed a 15 year contract with the SES satellite. That reflects its commitment. And confidence.
Insiders are so bullish about OpenView’s prospects that HCI’s biggest shareholder, the SACTWU Investment Fund, has swapped 14m of its HCI shares for a direct investment in Sabido, owner of eTV and the new project. At current market values, that’s a R1.8bn switch from the top company to OpenView’s direct parent. Rupert might be playing it down. But his partners are taking this very seriously indeed.
Below is the column as it appeared in the Business Day newspaper on Monday. – AH
UNDICTATED: OpenView vs Multichoice; Rupert intends settling old score with Naspers’ Bekker
By Alec Hogg*
When elephants fight, the grass gets trampled. In Africa’s Pay-TV arena, long the private reserve of media giant Naspers, the grass is about to get stomped out of existence.
The challenge comes from an old enemy, Richemont and Remgro chairman Johann Rupert. Scion of a family worth R70bn, he is still smarting from a bust-up 16 years ago with his then Pay-TV partner, Naspers CEO Koos Bekker.
Their relationship began in the early 1990s when Rupert selected Pay-TV as the third leg for the family’s offshore business Richemont. He had long fretted about its vulnerability to the risky cigarette and cyclical luxury goods sectors.
He wrote enthusiastically about Pay-TV in the Richemont annual reports of the early and mid 1990s. Then, as now, Rupert preferred a bigger stage. He chose Europe.
In November 1991, Richemont made its initial foray by acquiring 75% of a Swedish-owned Pay-TV business called FilmNet. Originally focused on the Netherlands, FilmNet’s footprint had expanded into Belgium and Scandinavia.
Rupert had seen fellow Afrikaner Bekker start and develop M-Net, South Africa’s first Pay-TV business. It was founded, like FilmNet, in 1985.
So Bekker’s M-Net was brought into Richemont’s new Pay-TV operation as an equal partner. A decision that wouldn’t have been taken lightly.
Among traits inherited from his late father Anton, loyalty is paramount to Rupert. Partners, usually 50:50, become like family. Joined at the hip. Through thick and thin. Indefinitely.
On the surface at least, the Rupert/Bekker honeymoon lasted years.
In successive annual reports Rupert re-iterated the long-term commitment: “….it may be some time before its investments contribute positively to the Group’s results.”
The FilmNet partnership expanded into new territories and it bought out the former Swedish owner’s remaining 25%. Things were further formalized in 1994 through the creation a 50:50 holding company NetHold BV. Naspers injected Multichoice’s 940 000 SA and other African subscribers into an already sizeable pot. Richemont added its recently acquired 25% of Italian Pay-TV operation Telepiu.
By 1995, the investment phase was in full swing. NetHold might have been losing R800m a year, but Rupert wrote enthusiastically about it now operating in 43 countries with a subscriber base of 2.4m.
During the financial year to end-March 1996, NetHold’s losses exceeded R1bn. But that was according to plan. The subscriber base had grown to 2.7m and the 50-country mark reached. Rupert was again upbeat, writing: “Richemont remains committed to the development of its interests in the electronic media industry.”
For Rupert, six months later the unthinkable happened. Bekker, just promoted to CEO of M-Net’s holding company Naspers, said he no longer wanted to play in Rupert’s sandbox.
What actually caused the divorce was never truthfully declared in public.
It’s unlikely that Naspers got cold feet at sharing Nethold’s losses which in its final financial year exceeded R1.5bn.
A more probable reason was the personalities of these African Bull elephants. Rupert the gregarious, opinionated, over-talker would have been combustible to the famously introverted Bekker.
Although internal documents were also never disclosed, their separation may have been officially documented as disagreement over geographic focus. Since NetHold, Bekker steered the Naspers ship away from developed markets where most the partnership’s investments were being made.
Rupert did not take the divorce well. The resentment has festered for years.
His half of NetHold went into Canal+ in return for 15% of the equity in what created Europe’s biggest Pay-TV business. Two years later that stake was sold to Canal+’s parent Vivendi. Thus ended Richemont’s Pay-TV adventure and its hoped-for third leg.
On the other side of the cracked altar, Bekker’s star rose. Multichoice, now wholly owned again, became the cornerstone of Naspers’ success. It still provides the lion’s share of the R370bn group’s cash flows, generated at a staggering 34% profit margin.
A decade and a half after Nethold died, Naspers’s Pay-TV cash cow is now at risk.
Rupert’s SA arm Remgro holds 31.2% of Sabido, the media division of Black-owned conglomerate HCI. Sabido is best known for its stake in eTV, beneficiary of SA’s only private free-to-air television licence.
Fifteen years after its launch, eTV generates earnings of almost R700m a year and was recently valued at R8.2bn. eTV catapulted former trade unionists Marcel Golding and Johnny Copelyn into the ranks of the super rich – their HCI shares worth R1.1bn to Golding, R700m to Copelyn.
Next month, Sabido launches OpenView HD. It has Multichoice in the crosshairs.
For consumers, OpenView has an irresistible price point. Pay R2 000 for the installation and get 15 channels for free. No monthly subscription charges. Ever.
OpenView is touted as a Golding/Copelyn initiative, an extension of eTV’s drive into the African continent. But for Remgro’s 63 year old chairman, it’s personal.
Rupert has massive cache’ in the sports world, the critical segment for Multichoice’s R625 a month top-end viewers. SA Rugby is the obvious starting point. His empire extends to MARC (formerly SAIL) which controls the Blue Bulls and has a substantial stake in Western Province.
Rupert is a global figure in golf. And through the Laureus Awards, his influence stretches even further. He is sure to call in favours from a vast network of friends, associates and those who simply fear him.
Mr Market hasn’t paid attention to the OpenView challenge. Naspers shares gained 25% in the past three months, adding almost R100bn since news leaked of the new competitor to its Pay-TV operation.
Analysts may justify the elevated price on a see-through value of its Chinese (TenCent) and Russian (Mail.ru) investments. But Naspers is an operating, not investment company. Cash flows are what really matter. They are under real threat.
Rupert has waited a long time for revenge. He means to have it.
* Alec Hogg is a financial writer and broadcaster who founded Moneyweb. He runs biznewz.biz. This column appears on Mondays in Business Day, Africa’s premier business newspaper.
