Canal+ paying a fair price for MultiChoice

Canal+ is looking to acquire MultiChoice for an estimated R55 billion – which is a realistic price for a company with a dominant pay-TV footprint across Africa and around R16 billion in tax losses.

The French media giant has steadily increased its stake in MultiChoice over the past few years.

When it hit the 35% threshold at the beginning of this year, a mandatory buyout offer was triggered. After some back-and-forth, Canal+ offered R125 per share, valuing the company at around R55 billion.

Due to its already substantial stake – Canal+ currently owns over 45% of MultiChoice – the buyout will cost Canal+ an estimated R30 billion in cash. 

When this deal was first made, many questioned why Canal+ would be interested in a company whose financials had been in decline for years. The company had been haemorrhaging cash yet struggling to show real growth for some time.

For example, in its latest results for the year through March 2024, MultiChoice suffered a R4.1 billion loss and became technically insolvent.

The poor performance was partly due to a 9% decline in active subscribers, which included a 13% decline in the Rest of Africa business and a 5% decline in South Africa.

MultiChoice’s total assets declined from R47.6 billion to R43.9 billion, while liabilities increased to around R45 billion.

This leaves MultiChoice with a negative equity of R1.07 billion, which means it is technically insolvent.

The company will, therefore, require a significant turnaround to return to a stable and profitable position.

In addition, if Canal+ wants this deal to go through, it will need to jump through multiple regulatory hurdles to make that happen.

In particular, it will need to get around the Electronic Communications Act (ECA), which limits foreign control of commercial broadcasting services through strict ownership rules.

Daily Investor asked Urquhart Partners’ Richard Cheesman why Canal+ would be interested in a company faced with these challenges.

Cheesman explained that, by acquiring MultiChoice, Canal+ will expand and solidify its position in Africa for about €3 billion, which, in the global TMT industry, seems to be a reasonable price. 

He explained that this is not an excessive amount to pay for a company with the substantial reach across the continent that MultiChoice has developed over the years and the opportunity it represents for Canal+ to essentially control the pay-TV market in Africa. 

In addition, MultiChoice has around R16 billion in tax losses, which is significant when considering the R55 billion price point.

However, Canal+’s main interest is the reach MultiChoice will give the French media giant in Africa, a continent that is set to grow significantly over the next few decades.

The Outlier has analysed the top TV providers in Africa and found that the continent is currently split three ways –

• Southern and Eastern Africa are dominated by MultiChoice
• Central and West Africa are dominated by Canal+
• North Africa is dominated by the Arabic Shahid network 

Therefore, if Canal+ is able to acquire MultiChoice, it would control the large majority of Africa, making it the dominant pay-TV provider on the continent.

“Putting the groups together, you have very complimentary coverage of the whole continent,” Cheesman said.

He explained that this would allow the company to negotiate better prices for content and become the continent’s de facto content gatekeeper.

It would also enable key cost and revenue synergies between MultiChoice and Canal+’s services.

In addition, Cheesman said MultiChoice’s financial situation is not as dire as many may believe. MultiChoice South Africa, the group’s largest subsidiary, increased its earnings by 14% to R7.7 billion and announced a R5.5 billion dividend.

He explained that some of the largest factors weighing on the group’s performance are short-term pressures that can reasonably be expected to improve in the coming years.

For example, the naira free float implemented last year saw MultiChoice take a massive forex hit in the past financial year. However, once the currency has stabilised, this should no longer have such a large impact.

The company also has many projects in the works that have yet to bear fruit but which it expects to become profitable within the next few years.

For example, Showmax’s relaunch took place at the start of this year, with MultiChoice expecting the streaming service to generate $1 billion (R18.5 billion) within the next five years.