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THE HOYOS FILE: How the RJR, Gleaner merger adds up


PAT HOYOS

THE HOYOS FILE: How the RJR, Gleaner merger adds up

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NOTHING WAKES YOU UP with such a jolt than when you see an icon reduced in stature, struggling to keep his, her or its dignity amidst the turmoil all around it.

Even where the wounds are self-inflicted it can be hard to assimilate the change in the icon’s place in the world in which the name alone suggested dominance.

I am here thinking about the merger of The Gleaner with Radio Jamaica Ltd. (RJR) The short version is that The Gleaner media entities are to be hived off into a neatly tied up parcel and swapped for shares in RJR, where that package will become a wholly-owned subsidiary of its former electronic rival. The longer version has a lot to do with Jamaica being stuck in the mud economically under the International Monetary Fund’s (IMF) austerity programme, a major plank on which has been devaluation of the Jamaican dollar.

I am talking about The Gleaner here. The grand old lady of the media in Jamaica, which has been published continuously for 180 years, and whose name was once in its country a synonym for the word newspaper, as Kleenex was with tissues.

RJR’s Lester Spaulding and The Gleaner’s Oliver Clarke have been friends and rivals for decades, but both apparently have seen that they cannot continue to go it alone. So The Gleaner’s shareholders will accept a one-for-one trade for RJR’s shares.

But they will still have their shares in the remaining part of The Gleaner, which is making money from its real estate investments which will change its name, perhaps to “The Real Estate Company That Once Owned A Great Newspaper”.

Both Spaulding and Clarke, who have in recent years demitted their managing director posts but stayed as chairmen of their respective companies, will probably retire soon after the newly-merged entity has settled down. Then it will be up to the younger people in the organisation – led by RJR’s managing director Gary Allen, who will become the new chief executive officer, and his counterpart at The Gleaner, Christopher Barnes, who will be the new chief financial officer – to take the new entity into the future.

As Clarke said at last Wednesday’s Press conference: “As a 180-year-old company, coming together with anyone is intended to give us longevity, diversity and new energy. We see the prospects for all those things in our coming together with RRJ.”

Offering some perhaps more gritty insight into the reason behind its friendly takeover of The Gleaner’s media operations, Spaulding said the market was saturated, and recent moves by local telecoms to enter the media space was sure to put increased pressure on the industry.

On RJR 94FM on Wednesday, Spaulding said that if the two companies continued along their respective paths, major cuts in spending would have had to be undertaken, and that by coming together they could achieve more economies of scale while keeping as many of their media entities going as long as possible.

He said the merger should be seen as a platform to allow the new entity to move forward and be able to undertake costly projects that would be more economical to do as one group.

Spaulding said that the integration of The Gleaner into RJR was chosen as the method for the coming together of the companies because it would not affect the company’s broadcast licence.

It was in RJR’s interest to acquire The Gleaner, “[because] our business is valued at more than The Gleaner’s media assets . . . and they are prepared to be able to sell to us [through a share swap]. We need the cash down the road to do other things without having to go to the market to raise it.”

There are a lot more elements to this merger than meet the eye, and one of them jumped out at me when I was doing the sums on each company’s recent financials. I kept thinking that there had to be some mistake.

For a marker, let us look at One Caribbean Media (OCM) the parent company of this newspaper, which is facing its own challenges from the disruptive world of all things digital. In 2014, OCM earned a net profit of TT$84.7 million, the equivalent of US$13.1 million on gross revenues of TT$548 million or US$85.5 million. Its assets stood at TT$822.4 million or US$130.6 million.

By contrast, in 2014, the Gleaner Company’s net profit was JCA$181 million, or about US$1.5 million on gross revenue of JCA$3.32 billion, or about US$28.4 million. A lot of that profit, however, came from its real estate and other investments. The Gleaner has assets worth JCA$3.7 billion or about US$31 million. RJR, in fiscal 2014 earned a net profit of JCA$59.5 million or about US$500 000, on total revenue of JCA$1.84 billion or US$15.7 million. Its assets are about JCA$1.6 billion.

So if you add the two companies’ revenues together, including the real estate profits of The Gleaner, you get a combined net profit of about US$2 million on gross revenues of US$44 million, one sixth of OCM’s net profit on about half of its gross revenue. The combined assets would be about JCA$5.3 billion, or the equivalent of US$45 million, about a quarter of OCM’s.

If you want to know why these companies, especially The Gleaner, are “seeing the truck coming” down the road, as Spaulding said during his radio interview, you might not need look much further than the devastating devaluation of the Jamaica dollar, which has fallen by something like 25 per cent in the past couple of years just prior to, and as a result of, its IMF programme.

As far as I know, newsprint isn’t getting cheaper, and you pay for it in what the Jamaicans like to call “hard dollars”. So my question is this: Did the fall of the Jamaican dollar lead to the fall of The Gleaner?

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