Canal+ and MultiChoice saga far from over

Canal+’s offer to buy MultiChoice seems likely to go through, but it is not guaranteed, as the French media giant still faces many hurdles.

This is the view of Urquhart Partners’ Richard Cheesman, who told Daily Investor that, if this deal goes through, it will likely take longer than many expect.

His comments come after Vivendi SE’s Canal+ made an all-cash formal offer for MultiChoice on 8 April 2024.

Canal+ valued the South African broadcaster’s shares at R125 apiece, leading to a total valuation of around R53 billion.

A newly formed independent board of MultiChoice will now consider the bid. 

Cheesman said that the transaction now seems likely to go through, but it is not guaranteed since Canal+ still has many more hurdles to overcome, particularly regulatory challenges.

Canal+ emphasised its intention to comply with regulations in its most recent update on the offer.

“Canal+ and MultiChoice intend that upon successful implementation and completion of the transaction, the relevant entities within the MultiChoice Group will comply with all applicable laws regarding economic transformation, BBBEE and foreign ownership restrictions in the electronic communications sector and other regulated sectors in which MultiChoice operates.”

Canal+ also specifically highlighted the Electronic Communications Act (ECA) – the most important regulatory hurdle that has plagued Canal+ since it started buying up more MultiChoice shares.

The ECA limits foreign control of commercial broadcasting services through strict ownership rules –

• A foreigner may not, whether directly or indirectly, exercise control over a commercial broadcasting licensee.
• Not more than 20% of the directors of a commercial broadcasting licensee may be foreigners.

MultiChoice has previously said their compliance with the ECA is ensured through restrictions in their Memorandum of Incorporation (MOI), where voting rights for foreigners collectively are limited to 20%.

The limited voting rights may bypass the ECA foreign ownership restrictions to some point, but a full takeover is a completely different beast.

In addition, Canal+ said it is fully committed to maintaining MultiChoice’s BBBEE credentials and acknowledged the “key role” played by Phuthuma Nathi in this regard.

MultiChoice created the Phuthuma Nathi scheme in 2006 to offer Black South Africans the chance to own an indirect stake in the company, and the scheme now owns 25% of MultiChoice South Africa.

“Canal+’s wording is quite clear that it is just referring to the South African entity,” Cheesman said. 

“Canal+ is not referring to the entire group, which makes sense – the restriction only really applies to the South African entity.” 

He added that MultiChoice’s MOI currently limits the voting rights for the whole group, but it should only apply to the company’s South African division.

Another variable that has recently been added to the transaction is the possibility of billionaire Patrice Motsepe joining Canal+’s bid for MultiChoice.

Bloomberg reported last week that Motsepe is in talks with Canal+ to join its bid for MultiChoice, which could help it meet the country’s strict Black ownership requirements.

Cheesman said Motsepe would likely only get involved in the South African component of the business. 

This could ensure that Canal+ stays within the foreign ownership limits. 

“One would expect the ownership of the South African business to change, and there could be a new empowerment partner or increased ownership through the Phuthuma Nathi scheme,” Cheesman said.

However, it remains to be seen how Canal+ will cross the regulatory hurdles in its way.

Cheesman said it appears that Canal+ has won over MultiChoice’s management, which could make the buyout process significantly smoother.

Regardless, he said the transaction would likely take more than twelve months, despite some speculation that it should be finalised in a year.

He used Heineken’s takeover of Distell as an example. While that transaction had its own nuances, the deal was somewhat simpler and arguably had fewer public interest issues than the Canal+ and MultiChoice deal, yet it took more than a year to be completed.

“It could take more than a year to complete, and the agreement allows for up to two years for the transaction to be finalised. It would be surprising if this is completed in less than a year,” Cheesman said.

“It’s a very complicated transaction, but the parties seem committed and can get it through.” 

“Both parties seem to be trying to make it work, everyone will have to be appeased. It’s a difficult task, but with management on board, and if Canal+ comes with a good enough offer for the regulatory bodies, it seems likely to be able to get it through.”