Why Vivendi SE’s Canal+ wants to buy out MultiChoice

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JIMMY MOYAHA: We can’t ignore that share price movement that Schalk [Louw of PSG Old Oak] [has just] mentioned. MultiChoice surged on the back of the news that Canal+ wants to acquire the rest of the business that they don’t already own.

I’m joined on the line now by the editor at TechCentral, Duncan McLeod, to take a look at this. Good evening, Duncan. I think I spoke to you on Tuesday, but nice to speak to you again. Let’s take a look at this amazing news. I suppose the market does not know what to make of it other than to be overly excited.

A 40% premium is definitely something to be excited about, regardless of what kind of shareholder you are and how long you’ve been a shareholder.

DUNCAN McLEOD: Well, I don’t know about that because MultiChoice’s shares have been under significant pressure over the past six to seven months.

The offer that Canal+ has now put on the table here is actually below where MultiChoice was trading a year ago. So you could argue that they’re potentially getting this business at a steal.

It has been under pressure over concern about the performance of DStv, and also the investments that it is having to make in relaunching Showmax.

So the share price has been very depressed, and the case could be argued that Canal+ is trying to get this at a steal. Maybe it should be offering more.

Read: Canal+ makes offer for MultiChoice

JIMMY MOYAHA: I was going to ask you what a fair value seems to be. But as you rightly mentioned, I think at the end of January last year, around exactly this time last year, the share price was closer to R140 and back then they were still committing to increasing their shareholding at the same R130/140 range.

So one could definitely argue that you’re getting almost a 50% discount on that price, and the business has now relaunched Showmax. It’s now a stronger business. It’s seemingly on a better footing than it might have been on a year ago.

But let’s look at some of the mechanics of the deal, Duncan. It’s all good and well to want to go down this road, but obviously it’s still subject to a lot of approvals.

I suppose the biggest approval that sits in everyone’s mind concerns the regulations that are in place around broadcasting rights. If I’m not mistaken, a foreign entity cannot own more than 20% of the broadcasting rights. Now, this presents a unique conundrum for a company like MultiChoice in that if you’re a national broadcaster and you’ve got those broadcasting rights for certain things, do you give those up? How do you structure the business?

There are obviously ways to structure the business to get around this, and this will be one of the considerations. What are the other considerations you think that the Competition Commission will be looking at?

DUNCAN McLEOD: Well, there’s a lot there. I think the Competition Commission process is going to be separate to this. The Competition Commission has been very aggressive in blocking M&A activity in let’s call it the digital sector in the past year, so I would be surprised – if it got to the Competition Commission – if it didn’t launch a full-scale investigation into this deal and its potential impact on the market.

And if the Competition Commission were to approve it, there’s no doubt that there’d be big strings attached to any deal.

But that’s only part of the challenge of getting this deal across the line. You mentioned the 20% figure. Just for clarity, Canal+’s stake in MultiChoice is already above 20%. In fact, at the last disclosure, it’s sitting at 31.7%.

However, what the law actually says is that no foreign entity may hold more than 20% of the voting rights in a South African broadcaster.

What MultiChoice has done is to ensure that Canal+ does not exercise those rights, does not have those voting rights, even though its economic interest in MultiChoice is beyond 20%. In theory Canal+ could buy 100% and not have any voting rights in the business, but there’s no way of course it is going to do that. It wants control.

JIMMY MOYAHA: I was just going to say, Duncan, it’s one thing to exercise that – and I think inscribed in the memorandum of understanding that MultiChoice has are those voting rights. You’re absolutely correct there. Apologies for not mentioning that. It’s certainly the voting rights.

But if I own 100% of a company, I’m not going to sit there and be unable to [have] enough influence on what I feel is a strategy for a business I’m paying for. So certainly that has to come across to Canal+ to say, okay, but then how do we present that influence without infringing on those voting restrictions?

And how do we then, more importantly, convince all the other parties – whether it’s the Competition Commission, whether it’s the regulator that would oversee all of this – that we will then not be overstepping? Or do we then say we’re going to take a different approach; we’ll wrap it up in different structures; we’ll put a trust in place that’ll hold our shareholding, or whatever. I guess that’s the conundrum that Canal+ has to now deal with. But I’m sure they would’ve thought about this over the past three years.

DUNCAN McLEOD: I’m sure they have, but I’m a layman, I’m not a lawyer.

I can’t see a way they can get us across the line as it currently stands, unless the rule applies only to MultiChoice South Africa, and not to the MultiChoice Group, and Canal+ somehow engineers a deal that involves the rest of Africa operations, excluding South Africa potentially, if that is the case. And I don’t know if it is.

Perhaps they could not buy the South Africa component of MultiChoice, but I’m not sure MultiChoice would want to split itself up like that.

JIMMY MOYAHA: It seems complicated. It seems complicated to then say the South African business will be separate and then a wholly owned subsidiary of the group business. How do we then deal with it, because I suppose if we go that route we now have to deal with delisting, or a separate listing, or separation of the listing on the JSE, because the group is what’s listed on the JSE, not South Africa.

DUNCAN McLEOD: Yes. It’s very, very complicated to get a deal like this across the line; without a change to the actual legislation, I can’t see how it would happen.

Now we know that there’s a Draft White Paper on Audio and Audiovisual Media Services which is an overhaul of broadcasting legislation in South Africa. I think it’s meant to replace the Broadcasting Act. That has proposed increasing the limits on foreign ownership from 20% to 49%, which may change the picture a little, but it still doesn’t get them control.

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That legislation, though, is still going through the processes and is unlikely to see the light of day, I think, much before 2026.

So they can’t rush a deal now, and do a deal this year or even next year on the basis of the legislation possibly changing. A lot of possibilities there.

It’s really difficult to see how they get this across the line.

The other question to ask is whether Canal+ is simply trying to muddy the water in some way.

You’ll remember that the newly relaunched Showmax has a US investor in the form of Comcast, which is one of the world’s biggest media companies.

They own NBC Universal and the UK’s Sky Group.

I’m sure the executives sitting in Paris at Canal+ have been watching MultiChoice and Comcast getting cosier and cosier with one another.

Comcast owns 30% of Showmax and Calvo Mowela, the group CEO of MultiChoice, has said that MultiChoice is open to [Comcast] buying even more. And because they’ve become so cosy with each other, maybe Comcast itself might consider buying a stake in MultiChoice.

Read: MultiChoice’s big Showmax streaming JV with Comcast’s NBCUniversal and Sky

And perhaps the executives at Canal+ are watching this situation with a bit of trepidation, wondering if they’re about to lose their prized asset that they’ve been building up a stake in here.

For Canal+ this is really important for two reasons.

Firstly, they’re being unbundled and separately listed in Paris. They’re being unbundled from the Vivendi SE group – which is the biggest media group in France and probably Europe – and listing separately. So they’re looking to build up bulk for that listing; to underpin the Paris listing of Canal+.

The other thing is that Canal+ and MultiChoice’s African operations are very complementary, because Canal+ operates mainly in Francophone Africa.

It’s very strong in Francophone Africa and MultiChoice is very strong in Anglophone Africa. So putting them together would create a powerhouse African broadcaster.

If Comcast edges its way in and starts buying up stakes and possibly buying a stake in MultiChoice Group, that could scupper the chances of Canal+ building a powerful pan-African broadcaster.

So I think there’s a lot of stuff at play behind the scenes here. And it’s going to be fascinating to see how it plays out. But I think there’s even a possibility that Comcast might get involved in the bidding.

JIMMY MOYAHA: Duncan, I think you’ve just turned the conversation completely on its head. We’ve gone from whether or not Canal+ wanted to buy at a discount to potentially what we saw happen with Northam and Implats over that Royal Bafokeng deal.

Nobody wants to let the opposition buy the stock at a cheap price.

So maybe you are right. Maybe Canal+ is saying, ‘If Comcast wants to get involved, we’re not going to let their average price be lower than what we’ve paid’. And so it would be in everyone’s interest to prop up the share price even back up to R130, even if it doesn’t go beyond that. So that’s definitely another angle.

DUNCAN McLEOD: There is potential for a bidding war here. There very definitely is, but again this 20% could be the thing that scuppers anyone buying MultiChoice.

But we’ll have to see. There’s always a way to get over these things politically, I suppose.

Whether Canal+ or anyone else has had a conversation with any of our cabinet ministers about doing a deal, I don’t know. That could be the sticking point, that could be the thing that makes the deal impossible.

JIMMY MOYAHA: It’s always nice to see what happens when companies that have large balance sheets and don’t know what to do with their cash all get into the same room and decide to do something.

We’ll have to leave it at that, Duncan. Thanks so much for your insights. That was Duncan McLeod, editor at TechCentral, sharing his insights on the latest announcement that MultiChoice could potentially be bought out by the French company that already has an existing shareholding in the form of Canal+.

William Murphy

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