Lebashe's Warren Wheatley: Print media is not dead or falling off a cliff

Lebashe Investment Group has big plans for Tiso Blackstar, which it recently bought for R1 billion.

Warren Wheatley (pictured), the chief investment officer of Lebashe Investment Group, believes in the investment philosophy of buying unpopular assets for cheap and embarking on several initiatives to make them grow. In other words, the South Africa-based investment holding firm, which is 100 percent black-owned, takes big bets where many are not comfortable to go.

For example, in 2015, Lebashe bought a more than seven percent stake in Capitec Bank when there were concerns about unsecured lending to indebted consumers in South Africa following the collapse of African Bank in 2014 due to soured loans.

It’s a bet that has worked well for Lebashe as Capitec is a front runner in South Africa banking industry. And today, Lebashe’s shareholding in Capitec is valued at close to R10 billion.

In 2018, Lebashe backed technology firm EOH by buying a 26.3 percent shareholding in the technology firm that was once a market darling but has now buckled under the weight of recently unveiled corruption activities worth R1.2 billion. Lebashe bought EOH shares when they were trading at around R30 per share. But corporate governance scandals have weighed on the EOH share price as it’s trading at around R16 per share.

Warren said he knew EOH was an underperforming asset but Lebashe is willing to invest in the long-term and be patient for a turnaround story – at least for the next five years.

Lebashe has taken the investment philosophy of buying cheap and unpopular assets a step further.

In June, the company emerged as the new owner of Tiso Blackstar, the publisher of Business Day, the Sunday Times, Sowetan and other media titles. Lebashe bought Tiso’s print, broadcasting and content businesses in South Africa, Ghana, and Kenya for R1.05 billion. Tiso will retain ownership of multi-channel marketing and communication solutions business Hirt & Carter and the Gallo Music Group

Arguably, it’s an unpopular deal as media – especially print media – in South Africa is in structural decline and faces profitability challenges. Print media sales and advertising revenues are under pressure as consumers increasingly consume content online. But media is one of the fundamental building blocks of a constitutional democracy as it has exposed corruption scandals and patronage networks in South Africa’s private and public sector.

Lebashe had a R1.5 billion-worth war chest, which it has already spend R1 billion to buy Tiso. The purchase of Tiso brings the value of its total assets to R12 billion, spanning across financial services, ICT and others. The company holds stakes in various well-known businesses, such as Capitec, EOH, RainFin (financial services firm), 4AX (alternative stock exchange) and others.

In an interview with M&A Africa, Warren discusses Lebashe’s ambitious plans for Tiso to become a pan-African digital agency and further media acquisitions on its radar.

M&A Africa: Is it the end of the road for print media in South Africa given its challenges?

Warren: No. We know that print is in decline, but we don’t think it is going to fall off a cliff. We think that people will continue to consume news. With the proliferation of fake news and unverified news, we think people will be drawn to quality brands.

We think the consumption of media is going to continue. But we need to increase the quality of what media platforms produce and make it more accessible to people. Then people will start paying for content.

M&A Africa: Adverting revenue is still the main source of revenue for print media. Is this model broken and shouldn’t media titles start looking at other sources of revenue like donor funding?

Warren: I don’t think so. That’s why we insist on quality content so that people want to read the content and pay for it. There must be some type of paywall structure. I don’t think it is ever going to be appropriate for a group like Tiso to rely on donations. I don’t think we would want to take away donations from smaller media groups. Donations are more needed in that space. We have to get smarter about the aggregation of content so that we can deliver what consumers want.

M&A Africa: Tiso Blackstar has some of the top media titles in South Africa. What’s your early diagnosis of what’s wrong with the titles and their content?

Warren: I don’t think the quality of content is as good as it could be. What we would like is for the Business Day to be the South African equivalent of the Financial Times. If you pick up the Financial Times, you can see the quality of content and that journalists have financial expertise. If a journalist interviews a financial analyst, they should challenge him/her on what they say and not just report on what they say. They must be able to question and challenge information to give readers two or three perspectives. They have to educate readers as opposed to just informing them.

We think there is room for improvement. We don’t think the quality of Tiso titles is horrible. But we do see more intense and investigative work in other smaller publications. And we think that is missing in some Tiso star publications.

M&A Africa: In practical terms how will you reform the media business to be able to produce quality content?

Warren: The idea is to get the quality back up, start to aggregate content and distribute it not only in South Africa but across Africa. We have acquired assets in Kenya, Ghana, and Nigeria. We are looking at the rest of sub-Saharan Africa. We will want feet on the ground in Africa so that we have stronger coverage in the continent. We are making a strategic bet on content, which includes entertainment, music, television, and sports. There will be exciting deal announcements in the next few weeks.

M&A Africa: You talk about the aggregation of content. Are there models that exist currently and you are hoping to replicate at Tiso?

Warren: If you look at Netflix, it started being a platform where people could access content and they used to aggregate content from Disney, Warner Bros., AT&T, and HBO. And people could view all the content in one place. What is happening now is that the content creators are starting to realise that they have been feeding this wolf (Netflix) with content that is starting to eat their market share. So, all these content creators have cut their contracts with Netflix, which has realised that they have been disrupted and are now spending money on content creation. We think that people will become platform agnostic and go to the places where the best content is created as opposed to consuming everything through Facebook, which has thousands of feeds from different places. They will go to the source of information that they can trust. We view Tiso as content creators and want people to consume their content.

M&A Africa: Where do you stand on the editorial independence of the media titles you have bought?

Warren: Editorial independence and freedom of the press are two of our main pillars. We won’t get involved in running newsrooms. We have retained some consulting appointments and the existing guys (Tiso’s management) will stay on for two years. Operationally, we have set a mandate of high-quality reporting.

M&A Africa: How is Lebashe funding the Tiso acquisition?

Warren: We are not using debt to fund the acquisition. Tiso, for whatever decisions that they have taken, have debt on their balance sheet. They have so much debt in the group that commercial banks are almost running the business. They can be cut-throat and ruthless. That’s why the company has been decimated. Immediately from day one when we take Tiso over, it will be a relief to the company as the debt burden will come off. We will be paying R1 billion to buy Tiso, which will half their debt position.

There will be some debt in the business, but it will be more from a tax efficiency perspective and there will be cash-flow available to enhance the business and make some appointments.

M&A Africa: Is the R1 billion price tag for Tiso fairly priced?

Warren: It is not cheap but not expensive either. We looked at various multiples and metrics. It is in line with worldwide standards for media groups. It’s about seven times the earnings before interest, taxes, depreciation, and amortisation. It is certainly not cheap. But it is sort of mid-priced.