MultiChoice executives on their knees

MultiChoice’s latest financial results show that the company is in serious trouble and that the Canal+ deal is the only way to avoid a share price crash.

On Tuesday, MultiChoice released its consolidated interim financial statements for the period ending 30 September 2024.

Revenue for the six months declined by 11% to R24.8 billion, operating profit declined by 49% to R2.5 billion, and its loss increased by 102% to R1.8 billion.

The balance sheet also worsened. The company’s negative equity increased by 155% to R2.7 billion, driving it deeper into technical insolvency.

MultiChoice said it has initiatives to resolve the negative equity position by the end of November this year.

It includes a “transformative insurance deal with Sanlam Life Insurance through which MultiChoice expects to recognise an accounting gain of R2.6 billion to R3.3 billion.

However, this is a once-off, and the rapidly increasing losses mean its liabilities and debt burden will increase again.

The biggest challenge for MultiChoice is that its results do not contain any real positive news. Subscribers are down, costs remain high, and losses are increasing.

MultiChoice’s DStv and other subscribers plummeted from 16.7 million to 14.9 million over the last year. It includes a 5% reduction in South Africa and a 15% decline in the Rest of Africa.

The company has previously said that it is pinning its hopes on its video streaming service, Showmax. However, this is an even bigger disaster.

Showmax’s revenue declined from R704 million to R469 million, and its loss increased from R799 million to R2.4 billion.

That means that Showmax contributed virtually nothing to MultiChoice’s top line but added over R2.4 billion to the company’s losses.

MultiChoice highlighted that Showmax delivered a 30% year-on-year increase in paying subscribers. However, this means very little when revenue declines.

Its other potential growth area, sports betting, performed equally poorly. Net gaming revenues declined by 48% to R0.9 billion, with increased losses and much lower earnings.

Simply put, MultiChoice is facing a challenging future. Its DStv subscriber base is declining, and its new ventures are racking up losses hand over fist.

Canal+ deal is the only hope to stop the share price from plummeting

The MultiChoice executives are on their knees, praying that nothing goes wrong with the Canal+ deal. If they are not, they should be.

In June 2024, Canal+ announced a mandatory offer to acquire the MultiChoice shares it does not own for R125.00 per share.

The offer of R125 per share represented a 66.66% premium compared to the MultiChoice share price at the time.

In its latest results announcement, MultiChoice said it made meaningful progress on the Canal+ transaction.

This progress includes submitting a merger control filing to the Competition Commission on 30 September 2024 and engagements with other regulatory authorities.

“MultiChoice continues to work closely with Canal+ to support the successful conclusion of the mandatory offer to shareholders,” it said.

It is far from certain that the Competition Commission and other regulatory bodies will approve the deal.

For starters, South Africa’s Electronic Communications Act (ECA) prohibits a foreign company from having over 20% of voting rights in a South African broadcaster.

ICT policy legal expert Lisa Thornton said as a foreign entity, Canal+ may not have more than 20% voting rights in the MultiChoice group.

Canal+ will also have to meet Broad-based Black Economic Empowerment (BBBEE) rules set out by the Independent Communications Authority of South Africa (Icasa).

“In particular, 30% of a licensee must be owned by South African BBBEE parties,” said Thornton.

“This might entail establishing a South African entity to hold the licensees in question and a partnership with local black entities or persons.”

There are clearly many hurdles before this deal will go through, including approval from the regulatory authorities.

If this deal does not go through, investors can expect the MultiChoice share price to plummet to an all-time low.

Before the first Canal+ offer, in November 2023, the MultiChoice share price was trading at R63 per share.

The company is in a much worse position now than when it was then, which means the share price can decline by over 50% if the deal falls through.