Canal+ deal gains momentum
Some view deal as a bailout opportunity from their investment in pay-tv giant Multichoice. By
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 is too low and undervalues 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 the 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 Aeon’s shareholding in it at 0.43%.
Merits of the deal
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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.