MultiChoice’s dance with Canal+

French media company Canal+ continues to increase its stake in MultiChoice by buying shares on the open market, raising speculation that a deal may be coming.

Canal+ is the pay-TV unit of French media holding company Vivendi which has interests in television, film, video games, book publishing, and video hosting.

MultiChoice first informed shareholders that Canal+ had acquired 6.5% of the company in October 2020. Since then, there have been regular updates on Canal+ increasing its stake.

In the latest update in July 2022, MultiChoice notified shareholders that Canal+ had increased its shareholding to 20.12%.

MultiChoice CEO Calvo Mawela said they continue to have monthly interactions with Vivendi and that the French media company likes MultiChoice, its management, and its prospects.

Mawela said their relationship with Canal+ is growing and they are working together on many products, including content co-productions and sub-licensing content.

The increased shareholding sparked speculation that Vivendi, through Canal+, could be looking to strike a deal with MultiChoice.

The biggest prize for Vivendi is most likely MultiChoice Africa, which has around 12.8 million subscribers.

Vivendi tried to acquire MultiChoice Africa in 2017, but Naspers, the parent company of MultiChoice at the time, has reportedly rejected the $1 billion offer.

MultiChoice would not comment on a new deal, only saying it kept an open mind about its relationship with Canal+ and Vivendi.

MultiChoice Africa and Canal+ a natural fit

MultiChoice Africa and Canal+ are a natural fit with many synergies which could unlock value for both companies.

Richard Cheesman, a senior investment analyst at Protea Capital Management, said they see the opportunity, means, and motivation for Canal+ to buy a larger stake in MultiChoice.

He explained that there is little geographical overlap in the operations of MultiChoice and Canal+ in Africa.

MultiChoice Africa is mainly operational in South and East African countries like Angola, Botswana, Ethiopia, Ghana, Nigeria, Kenya, Tanzania, Uganda, Zimbabwe, and Zambia.

Canal+, in turn, mainly operates in francophone countries of Central and West Africa, as well as some non-francophone countries like Sierra Leone, Nigeria, Ghana and Cape Verde.

Although there is some overlap, like in Nigeria and Ghana, the two companies focus on different parts of the continent.

Cheeseman said other benefits of a tie-up include lower content costs, better satellite leases, and the expedited use of MultiChoice Africa’s tax losses.

Merging Canal+ and MultiChoice Africa’s subscriber bases will give a new entity better negotiation rights on satellite costs, rights on sports and movie rights, and channel distribution agreements.

Combining Canal+ and Multichoice Africa’s advertising sales teams will extend their reach and improve efficiency.

A combined advertising offering reaching most countries on the continent will appeal to many global and African brands.

MultiChoice’s expertise in online streaming – DStv Now and Showmax – can also assist Canal+ in its online endeavours.

Uncertain what a potential deal will look like

There is uncertainty as to what a deal between MultiChoice and Canal+ will look like, should it happen.

Canal+ may well continue to stock up on MultiChoice shares in the future as it is getting it much cheaper than having to pay a premium through an official offer.

It can significantly increase its stake in MultiChoice as most of the broadcast giant’s shares are traded on the open market.

If Vivendi wants to merge Canal+ and MultiChoice Africa, it is unclear whether there will be a share swop or another type of agreement with MultiChoice.

There is the prickly issue of voting rights – the voting power of foreign shareholders may not exceed 20% of the total voting power in MultiChoice – but that is nothing a clever investment banker cannot solve.

A deal with Canal+ could help unlock MultiChoice Africa’s value faster than it will happen under MultiChoice.

MultiChoice Africa has been loss-making for years, and although it is targeting breakeven in the next financial year, it is likely to happen quicker in partnership with Canal+.