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KMAL: will it be ‘happily ever after’?

By Admire Mavolwane

ONCE upon a time, in the land of the “statue of liberty”, there lived two fair gentlemen who each led a prosperous corporate entity. As fate would ha

ve it, the two gentlemen met at a conference in Paris and during a conversation seemed to agree that it was a good idea to merge their two companies. The deal that the two conspired to do would create a company with a market value of US$350 billion, making it the largest merger in the history of the world. The year was 1999.

On one side was Steve Case who had led American Online Limited (AOL), formerly Quantum Computer Services since 1991. American companies have a different corporate structure to that with which we are familiar. Steve became CEO in 1991 and assumed the executive chairmanship in 1995. After a decade of hyper-growth, a voice told him to look for a merger partner. At that time AOL had a market capitalisation of US$163,4 billion.

Sitting across the table — metaphorically — was Gerald Levin, CEO of Time Warner. Time Warner itself was a product of a merger between Warner Communications and Time Inc, which happened in 1990, 12 months before Steve assumed the reigns at AOL. Gerald had had a good time in the corporate world, rising within the ranks of Time Inc to assume the leadership of the organisation in 1993, two years after Steve had already occupied the corner office at AOL. At the time the two started their mating dance Time Warner was valued at US$83,3 billion.

It is reported that the news of the share swap deal, out of which a new entity to be called AOL Time Warner would emerge, shook the investment world and brought the trading room at Merrill Lynch to a standstill. If the “done it and seen it all” analysts at the investment banking power house could be mesmerised by the deal then it was indeed a transformational transaction.

As is usual in most such cases, the leadership of the new corporation is always an issue. In this case it was settled in this manner; Steve became the chairman — it is not indicated whether the role was executive or non-executive — whilst Gerald became the chief executive of AOL Time Warner.

One of the prime motivations for the deal for Steve was to immortalise AOL which at that time was an Internet-based company facing the threat of the commoditisation of the web. AOL lacked access to the broadband pipes of cable television that could carry vast amounts of data.

And Steve didn’t have much in the way of content either. Time Warner’s cable-television system, the country’s second largest, owned plumbing aplenty to distribute AOL’s services. The company also had the proprietary content — magazines, books, movies, music, programming — to send down the pipes. For Gerald, Time Warner had remained inextricably mired in its own past, almost pathetically unable to make the great leap forward into the new Internet economy. The merger provided an easier and relatively cheaper route to enter onto the Internet information highway.

Seven years later, the setting is troubled Zimbabwe. As with America, we have two dreamers who have come up with their own mega deal. Relationship between the two started eight years ago, when the old establishment bought 25% of the new kid.

The funds enabled the green kid to establish a commercial bank. Coincidentally, this relationship started at about the same time that Steve and Gerald were announcing the impending coming together in holy matrimony of AOL and Time Warner.

On July 31, in separate statements, Meikles Africa Limited (Meikles), of which John Moxon is the influential chief steward and Nigel Chanakira’s Kingdom Financial Holdings (Kingdom), announced their plans to merge their businesses. Also coming to the party, in a quartet type of merger, were Tanganda and the then little known Cotton Printers.

The former, whilst listed, is largely under the influence of Moxon, as the family which he represents controls roughly 59% whilst the same family owns 100% of Bulawayo-based Cotton Printers. As far as the market is concerned, the promoters of the tie-up are Moxon and Chanakira. Please note that no inference is intended in the order of the names.

On the eve of the announcements, Meikles had a market capitalisation of US$148 million, whilst Kingdom was worth US$58 million. Tanganda was valued at US$21 million and the value of Cotton Printers at that time had not been ascertained. The combined market capitalisation of the three entities was US$227 million. The deal has been in the public domain since then with most commentators questioning the motivations of the promoters and concentrating less on the merits or lack thereof.

Will the three merge easily? Is this not mixing water, oil and sand? What about the issue of different cultures; can farmers, hoteliers, storekeepers, and smooth-talking bankers harmoniously sit around a single table? What kind of animal do you end up with when you mix a banking group, a renowned tea grower, a hotelier and retailer together with a yarn and bed linen manufacturer?

A camel with a stupendous hump, which has capacity to carry a lot of water — read raise a lot of capital — and enough strength and management resourcefulness to withstand the harsh environment of the global village. A camel is not the world’s most beautiful animal even without a huge hump.

The issue of management of the new entity to be known as Kingdom Meikles Africa Limited (KMAL) was settled, perhaps easily seeing that Meikles had no substantive CEO. Nigel, as CEO will be the chief rider of the camel, whilst John as chairman/godfather will provide the directions.

This week, with advisors in tow, Chanakira, Tanganda CEO, Andy Mills and Meikles executive director, Brian Thorn, brought the deal to town as it were. The roadshow presenters were at their eloquent best, but most of the variables could not be quantified. It is not yet known how much if anything would be needed to modernise Cotton Printers. Neither could the envisaged cost savings be quantified.

Most of the benefits, with the exception of the ability to raise capital in the offshore markets, particularly using Meikles’s secondary London Stock Exchange listing, which whilst plausible is at this moment very theoretical, have yet to be fleshed out.

The approvals for the transactions from the respective shareholders of the listed companies will be sought on November 15. But already the sweet smell of roses dominates the air. No doubt, in what has already become a fashionable passtime, well-wishers have already started drafting congratulatory messages for Moxon and Chanakira.

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