“News is the first draft of history”. This quote is often attributed to Washington Post publisher Phillip L. Graham by many media sources. Graham, born in 1915, couldn’t possibly have come up with an early 20th century quote. Many others attribute it to writer Alan Barth, who would have been a toddler around the time this quote became prominent. These examples are a reminder that, when repeated often enough, inaccurate statements from prominent sources can misrepresent history. Reporting on M&A transactions is no different.
In November 2024, South African Airways (SAA) announced that it had turned a profit for the first time since the 2012 financial year.[1] Many asked how a company that was nearly sold for R51 just a few years prior could be doing so well. The answer to this question is simple: this never happened. There was never a transaction where the national carrier would have been sold for R51.
Without delving into its intricacies, the SAA deal would have required the acquirer – a private equity consortium – to make a working capital injection of R3 billion into SAA over a period of two years. The R51 figure was simply a nominal amount representing 51% ownership in SAA, with 51 shares (out of 100) to be purchased by the acquirer at R1 per share. This means that the acquirer would have paid a total investment consideration of R3,000,000,051 (R3 billion, plus R51 for the shares).
One might wonder why it is still important to discuss the construct of a deal that is no longer being pursued. It is because the misconceptions that may be created (and are created) by headlines in such high-profile transactions which have or may have far-reaching consequences. In SAA’s case, the reporting played a role in eroding the confidence of the ultimate shareholder (the taxpayer) in the decisions made by the appointed representative, the relevant Minister at the time. There is, of course, nothing wrong with disagreeing with the economics of a deal, as long as the criticism is rooted in fact.
While the parties to a transaction that garners public interest cannot control what publications write about the deal, it is incumbent on such parties to provide information that is clear and accurate, and in a manner that stakeholders will understand. Many of the articles on the SAA transaction feature “R51 SAA deal” or a similar variation of the phrase in the headline. To their credit, some publications do delve further into the deal construct in the body of the article. Others, unfortunately, simply leave it at that: just R51.
While the concerns around reporting on state-linked deals may be centred mostly around issues of public buy-in, the communication and reporting around any high-profile transaction may have far-reaching consequences for that deal. Premature communication, for example, may lead to panic amongst shareholders. Delayed communication, on the other hand, may result in distrust from the public, shareholders and authorities alike and in some instance, scrutiny or even fines or censure from regulatory authorities. For example, section 9 of the JSE Listings Requirements requires listed entities to announce certain transactions such as takeovers, reverse take-overs and funding arrangements. Failure to announce such a transaction may result in censure or penalties, as set out in paragraph 1.21 of the JSE Listings Requirements. Unclear messaging may result in all of the above consequences. Because of these risks, parties in transactions that garner public attention have to ensure that, when they share information with the public, they do so in a manner that is clear, timely and unambiguous.
As much as transparency and communication are important, parties should take caution not to breach any confidentiality restrictions that may be contained in the transaction documents, or, where applicable, the disclosure regulations in the JSE Listings Requirements and legislation such as the Financial Markets Act.
Parties in such transactions need to formulate an effective communication strategy focused on clear messaging and timely updates. Clear communication on the proposed transaction provides transparency to stakeholders such as shareholders, employees and the public. Critically, it mitigates the risk of inaccurate reporting on the deal as a result of scant information from the parties.
The announcement of a proposed transaction is a key event in the transaction. It can have a significant impact on the valuation of a company, especially if it is a listed entity. The recent announcement[2] of the proposed Barloworld acquisition is an example of how announcements can affect a company’s value. The announcement was followed by a 21% surge in the share price, the biggest one-day gain for the company since 1999. Barloworld’s clarity in relation to who the parties will be, what they intend to do, timelines, the future of the company etc. undoubtedly contributed to this. This underscores the importance of clear, effective communication with the public when announcing a proposed transaction.
The flow of information should not, and in some instances, cannot end at the announcement stage. Where it is necessary to update stakeholders on the transaction, the parties should do so in a timely and appropriate manner. Delayed communication may result in discord among shareholders, a shift in the perception of the deal, negative reporting or, as mentioned, censure or fines.
Business media has, for a long time, played an important role in informing the public and holding industry participants accountable. It is, after all, on one of the media calls that analysts first raised the alarm about the dubious happenings at Enron. Parties engaging in M&A activity should embrace the flip-side of this coin, where effective communication with stakeholders ultimately trickles down to more accurate (and usually positive) reporting on deals. The better the communication, the lesser the risk of the transaction being misreported.
This article originally appeared in DealMakers: South Africa's Corporate Finance Magazine Volume 25, Issue 4, available here – DealMakers Annual 2024.
