MultiChoice shares soar after board warms up to Canal+’s sweetened buyout offer

8 Apr 2024

MultiChoice said it was willing to cooperate with Canal+ in its quest to buy the rest of the broadcasting conglomerate. This sent MultiChoice’s shares 5.1% higher on the JSE, adding R2.4bn to its market value.

The board of MultiChoice and shareholders appear to be warming up to the improved offer from French broadcasting giant Canal+ to buy Africa’s largest pay-TV operator.

The MultiChoice board told investors on Monday that it had entered into a cooperation agreement with Canal+ regarding its offer to buy the South African broadcaster — with both companies racing against time to conclude the multibillion-rand deal. This is arguably a clear indication that the MultiChoice board is now open to a takeover deal after initially rejecting Canal+’s offer, saying it was too low and undervalued MultiChoice.

Canal+ returned to the board with a higher buyout offer, offering to shell out R35-billion to buy the shares in MultiChoice it doesn’t already own. Canal+, which has increased its shareholding in MultiChoice to 36.6%, is prepared to buy each MultiChoice share for R125 in cash, which was raised from its initial offer of R105.

MultiChoice investors on the JSE seem to have welcomed the board’s intention to cooperate with Canal+ and the latter’s raised offer. Underscoring this is that MultiChoice’s shares finished 5.1% higher on Monday, adding R2.4-billion to its market value on the JSE during the day.

Conditions to the deal

MultiChoice and Canal+ have exactly one year (until 8 April 2025) to conclude the deal, failing which it might be terminated. However, the 8 April 2025 deadline can be extended, with the support of South Africa’s Takeover Regulation Panel, which is a regulator that has the mandate of assessing merger/takeover deals in the country.

The deal requires regulatory approval, which could prove to be the biggest stumbling block as South African broadcasting rules are open to a foreign entity (like Canal+) investing in a local broadcasting company but put a cap on ownership. Foreign ownership of broadcasters is restricted to 20% of voting rights in a company, although its economic interest can be higher. Canal+ might find itself on the wrong side of the broadcasting rules as, in recent weeks, it has continued to buy MultiChoice shares in the open market, raising its stake from 31.67% to 36.6%.

To get around this regulatory problem and others, MultiChoice has constituted an independent board to express a view on the fairness and reasonableness of the Canal+ offer. Canal+ might find its way around the broadcasting rule as the ownership restriction applies more to MultiChoice’s South African operations while foreign shareholders are invested at a group level, which includes the company’s operations in the rest of Africa.

Read more in Daily Maverick: Possible next steps for Canal+ after MultiChoice rejects R30bn buyout offer

The reality for MultiChoice is that it needs growth and partnership with a larger conglomerate to survive in a highly competitive environment. With a customer base of 22 million, MultiChoice’s growth strategy involves investing a lot of money in local and international content on its streaming service, Showmax. Canal+ might be MultiChoice’s white knight.

Another hurdle to get the deal over the line is for it to be approved by shareholders with at least 90% of eligible MultiChoice shares.

Once Canal+ has met the conditions and requirements tied to the buyout of MultiChoice, it has big plans for the company that will reverberate across South Africa’s stock exchange.

Read more in Daily Maverick: After the Bell: Can MultiChoice add to Canal+?

By completely buying out MultiChoice, Canal+ will secure the right to delist MultiChoice from the JSE, ending its six-year-long reign of being a publicly owned company. This will add to the headache of delistings that the JSE is facing as more companies weigh up the merits of being publicly owned and traded.

At the same time as considering a potential delisting of MultiChoice, Canal+ wants to offer investors in South Africa an opportunity to invest in Europe, where the company is considering listing.

“Canal+ intends that, should its planned European listing proceed, there will be an opportunity for South African investors to become shareholders of the combined entity as part of a secondary inward listing on the JSE.

“In particular, if Canal+’s listing occurs prior to the offer closing, Canal+ will consider revising the terms of the offer and extending to MultiChoice shareholders an opportunity to have exposure to the combined group through this listing,” Canal+ said.

MultiChoice and Canal+ expect to update investors about the ongoing buyout talks on 7 May.

Some MultiChoice shareholders have expressed relief at the offer by Canal+ to buy Africa’s pay-TV giant for R35-billion, essentially viewing the potential deal as a vehicle for them to be rescued from an investment that has turned sour.

On 8 April, the deal inched closer to being cemented as the board of MultiChoice agreed to cooperate with Canal+, a sign that it is warming to a tie-up with France’s broadcasting conglomerate.

The board initially rejected the offer by Canal+ to buy the MultiChoice shares that it does not already own for R105 each, saying it was too low and undervalued the company’s growth prospects.

But MultiChoice has now been convinced to reconsider its position as Canal+ improved the offer to R125 per share. Canal+ already owns 36.6% of MultiChoice shares on the JSE and wants to pay R35-billion to buy the rest of the company and take control of it.

The next big test is whether MultiChoice shareholders will support or reject Canal+’s offer, which requires support from 90% of shareholders to get the multibillion-rand deal over the line.

Daily Maverick canvassed the views of MultiChoice shareholders and industry players about the merits of the deal and whether they planned to throw their weight behind it when it comes up for a vote in the coming months. Early indications are that some shareholders view the deal as a blessing and a bailout opportunity from their investment in MultiChoice.

Before Canal+ made a move on MultiChoice, the latter’s share price had been down 22% as its operations came under pressure from declining DStv subscriber numbers and intense competition from streaming services such as Netflix, Amazon Prime and Disney+.

Its earnings have also taken a hit of billions of rands because of the depreciation in African currencies against the US dollar, especially in markets such as Nigeria.

In South Africa, competitors including the SABC and eMedia (owner of e.tv) have complained to regulators, accusing MultiChoice of anticompetitive behaviour and allegedly using its dominant position to restrict access to its broadcasting platforms and dictating restrictive licensing agreements.

The investment community response

Anthony Sedgwick, the cofounder of Abax Investments, was withering in his assessment of MultiChoice’s investment prospects. “Put frankly, we were relieved to see Canal+ finally step up and bail us out of the position,” he said.

According to MultiChoice’s latest annual report, Abax Investments held 0.34% of its shares. But Abax recently sold these shares, taking advantage of MultiChoice’s 25% share price jump since Canal+ initially tabled its buyout offer in February.

“We think MultiChoice is a great business that produces an incredible variety of content, creates opportunities for so many talented people, supports a huge variety of good causes and is a real South African business champion.

“But it operates in unfriendly regulatory countries … and faces some headwinds from hard currency-priced content and broadcast costs,” said Sedgwick.

Asief Mohamed, the chief investment officer of Aeon Investment Management, shared Sedgwick’s concerns about MultiChoice. “My guess is that the other shareholders will likely accept the R125 offer. Governance has for a long time been a concern of some shareholders, including ourselves,” Mohamed told Daily Maverick.

MultiChoice’s latest annual report has Aeon’s shareholding in it at 0.43%.

Merits of the deal

Canal+ has argued that the aim of buying MultiChoice would be to combine both businesses to create an entertainment giant that can survive a market facing intense competition and declining advertising revenue.

A combined Canal+ and MultiChoice will boast media businesses on the African continent, from South Africa and Nigeria to Senegal and Cameroon.

Canal+ said the media industry in which MultiChoice is operating “is becoming increasingly globalised and competitive, with regional media companies having to compete with the firepower of global media titans, with enormous resources to invest in content, marketing and technology…”

With a customer base of 22 million, MultiChoice’s growth strategy involves investing in local and international content on its streaming service, Showmax, and Canal+ is likely to provide capital to fund the growth.

Peter Takaendesa, head of equities at Mergence Investment Managers, has argued that only companies with scale and a strong balance sheet are likely to survive changes happening in the entertainment industry.

“Canal+ and MultiChoice can leverage content and financial strength. However, there is still no guarantee of success, as the fight against global streaming giants is intense.”

Other large MultiChoice shareholders are yet to opine on the deal. They include the Public Investment Corporation (PIC), which holds 13%, M&G Investments (more than 7%) and Allan Gray (6%).

Allan Gray declined to comment to Daily Maverick, and M&G and the PIC were not available to do so.

The MultiChoice-Canal+ deal is likely to take two years to be completed, as it still requires regulatory approval. DM

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Business Maverick

Conditions to the deal

The investment community response

Merits of the deal