Marc Hasenfuss Editor-at-large

Specialist technology hub Cognition Holdings is facing fierce resistance from certain shareholders — including media magnate William Kirsh — in its bid to buy an online property marketing venture from its major shareholder Caxton and CTP Printers and Publishers.

Speaking to Business Day on Friday, Kirsh — who founded Primedia — said the proposed deal lacked strategic logic and would also financially benefit Caxton at the expense of Cognition shareholders. 

 In October Cognition, which specialises in active data exchange services and permission-based marketing strategies, proposed acquiring Caxton’s 50.01% stake in Private Property for R127m. The deal will be settled by issuing 106-million Cognition shares at 120c/share.

Caxton already owns a 34.7% stake in Cognition, and the proposed deal will push its holding to about 65%. Minority shareholders are being asked to waive their rights to a mandatory offer.

Cognition punts Private Property as one of SA’s largest property portals with significant market share and historical revenue growth in excess of 30%.

It argued that Private Property presented an opportunity to better position the company to exploit the digital economy. Cognition also hinted at acquiring other Caxton-owned digital platforms and assets.

The Kirsh family speaks for about 5.4-million of the 138-million Cognition shares in issue. Kirsh, however, said other shareholders were banding together to block the proposed deal at an upcoming general meeting.

Kirsh believed the Private Property deal offered Caxton an unfair arbitrage opportunity.

“Caxton is selling an asset into Cognition at a far higher earnings multiple than the multiple attributed to the Cognition shares they will be receiving, notwithstanding that the Caxton business is itself trading at a very low earnings multiple.

“One has to ask why Caxton would be selling a good asset into a poorly run company like Cognition. The entire deal is totally unpalatable.”

Cognition, whose profits have diminished over the past five years, has been a poor performer on the JSE, plunging from a high of 305c in 2015 to about  110c.

Kirsh suspected the Private Property transaction was set up to ensure Caxton gained as much control over Cognition — which holds R104m in cash — as cheaply as possible.

“Cognition has never put the cash to proper use. When cash makes up more than half the market value then something must be wrong — especially on strategy.”

He also argued that the best option for Caxton was to delist Cognition from the JSE. “They simply don’t have a story to attract institutional investors.”

Cognition disclosed in October that Private Property posted R9.8m in taxed profit for the four months to end June and R24m for the full year ended February.