Canal+ buying MultiChoice – and what investors should consider

MultiChoice’s share price jumped by around 25% yesterday after Canal+ announced its intention to buy the company, but a lot of uncertainty remains on whether this deal will go through.

Protea Capital Management senior investment analyst Richard Cheeseman told Daily Investor that this share price reaction is normal following an announcement like this.

Canal+ submitted a letter to the MultiChoice board yesterday containing a non-binding offer to acquire all of the issued ordinary shares of MultiChoice that it does not already own.

Canal+’s offer is a cash consideration of R105.00 per MultiChoice ordinary share, representing a premium of 40% to MultiChoice’s closing share price of R75.00 on 31 January 2024.

The offer is subject to confirmations that Canal+ expects following further engagements with MultiChoice.

Upon the satisfactory completion of a confirmatory due diligence, Canal+ intends to deliver a firm intention letter to the independent board.

“At this stage, there can be no certainty about the progression of the potential offer, nor the terms of any transaction that may occur,” Canal+ said.

“Canal+ is respectful and observant of all laws and regulations relating to the South African media sector and companies listed on the Johannesburg Stock Exchange.”

“Any firm intention letter submitted would be mindful of the obligations that Canal+ would have in this regard.”

Cheeseman explained that one key factor influencing the market reaction is the duration anticipated for the potential transaction to reach a conclusion. 

Previous cases of similar buy-out offers have shown that the timeframe for finalising these kinds of transactions can significantly impact market evaluations. For example, Heineken’s buy-out of Distell took over a year to be concluded.

Another factor leading to uncertainty is the regulatory approval needed for the deal, particularly with entities like the Competition Commission and the Independent Communications Authority of South Africa (ICASA). 

Notably, South Africa’s Electronic Communications Act 36 of 2005 limits foreign control of commercial broadcasting services through strict ownership rules, which is a significant hurdle that needs to be overcome for the deal to
succeed.

It states that a foreigner may not, directly or indirectly, exercise control over a commercial broadcasting licensee. In addition, no more than 20% of the directors of a commercial broadcasting licensee may be foreigners.

This offer from Canal+ to buy MultiChoice comes after it bought a large stake in the DStv owner through the open market.

Over the past four years, Canal+ gradually increased its stake in MultiChoice – from 6.5% in October 2020 to well over 30%.

In February 2023, MultiChoice announced that Canal+ SA had increased its stake in the company to 30.27%.

Since MultiChoice first announced Groupe Canal+ was buying a large number of shares, the share price has traded relatively flat.

Canal+ was, therefore, able to increase its exposure to MultiChoice without needing to pay a premium on the DStv provider’s market value.

Cheeseman previously predicted that Canal+ was using a creeping takeover tactic to acquire a significant portion of MultiChoice on the open market and that this might lead to an offer to buy the company.

However, he said this offer came sooner than he would have thought, considering it was announced this week that Vivendi – Canal+’s parent company – plans to break up into four distinct businesses.

Cheeseman believed that Canal+’s offer would potentially only have come after this breakup was completed.

Aside from these factors, it is also not certain whether MultiChoice’s board and shareholders will accept Canal+’s initial offer. 

Following Canal+’s offer yesterday, MultiChoice said it is reviewing the letter and will “at all times act in the best interests of shareholders”.

“We will provide an update should there be any further developments. Any speculation on these matters would be inappropriate,” MultiChoice said.

Cheeseman said Canal+’s offer of R105 per share did not value MultiChoice richly. Despite rising to around R95 per share yesterday, MultiChoice’s shares had been trading at R75 the day before. 

However, there is a possibility that the offer price could go up, which could send the share price higher.

Cheeseman said MultiChoice’s share price will likely only reach the final offer price if the deal goes through and a day before the delisting.

For now, he said it is not a “no-brainer” whether MultiChoice investors should cash in on this 25% jump or stay invested in case the offer goes through.

As with all investments, he said each investor must decide how much they believe the company is worth and make a decision based on that valuation.

However, he said valuing MultiChoice at this stage can be very difficult, as the company has made significant investments over the past few years that have not yet delivered the benefits the company expects to realise.

For example, later this month, MultiChoice will launch its Showmax 2.0 offering, and earlier this year, it launched SuperSportBet. The jury is still out on whether these products will provide a return on the massive investments MultiChoice made in them.