A tricky balancing act

It is hard to see how SA’s economic regulators will approve the bid by Canal+ to acquire MultiChoice without imposing strict conditions on a deal worth R46bn. A week ago, Canal+ expressed its intention to buy MultiChoice. The non-binding offer, in the form of a letter, would cause the French company to acquire the rest of the shares it does not already own. So far it has been made only to the board of MultiChoice. A formal offer would have to be made to the shareholders, including the black shareholders through the empowerment scheme Phuthuma Nathi.

The offer, at a significant premium, is lucrative but fraught with difficulties. It would provide MultiChoice, Africa’s largest pay-TV operator, with access to resources and economies of scale to expand its footprint and subscriber base.

The French company’s overtures are a tribute to SA entrepreneurs who built up MultiChoice from scratch. The flow of foreign investment is to be welcomed. Lawyers, auditors, bankers, investor relations professionals and accountants will make a fortune advising parties to the transaction.

However, there are hurdles to be cleared before the deal is completed. As well as needing approval from shareholders, it will have to be adjudicated by the Independent Communications Authority of SA, the Competition Commission and Competition Tribunal. The regulatory process could be protracted and will invite comments from MultiChoice stakeholders, including SA’s militant labour unions. Almost invariably, transactions of this nature lead to duplication of support functions such as human resources, IT and finance. This often necessitates consolidation of these functions, which could lead to job cuts.

Already various sectors of SA’s economy are shedding jobs. Further job cuts during an election year will be hard to sell to SA authorities. The ANC government has weaponised competition law, and recent foreign acquisitions of SA assets have been accompanied by stringent conditions.

There are two other headaches for Canal+. First, there are restrictions on foreign ownership of media assets in SA. This is not unique to SA and other jurisdictions have restrictions too. In SA’s case, the cap is 20% of voting rights.

The second headache is invoking public interest in the competition law regime to scupper the deal, especially if it has the potential to lead to job losses in future.

Also, opponents of the transaction could raise fears of the reduction of local content under new ownership. MultiChoice is a much-loved SA multinational and a strong brand. It will not be difficult for opponents of the deal to mobilise support about local content concerns. MultiChoice has not been without challenges and has gone through a turbulent period in recent months. Still, it is hard to see how the mooted transaction will help it overcome these difficulties.

Canal+ executives are confident the transaction will pass regulatory muster. That may be true. However, the bigger challenge lies with Canal+ executives. The deal’s benefits are self-evident. But it does not outweigh the legitimate concerns about potential threats to local content and job losses.

Canal+ needs to assure South Africans it has a credible plan to address these fears. In a rapidly changing environment, no-one can guarantee job security for life. Yet plans could be put in place for medium-term job security and local content.