Kiss MultiChoice as you know it goodbye

MultiChoice has outlined the new structure it will adopt if French media giant Canal+’s buyout offer is approved.

Canal+ is looking to acquire MultiChoice for an estimated R55 billion. The media giant has steadily increased its stake in MultiChoice over the past few years.

When it hit the 35% threshold at the beginning of 2024, 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.

However, this deal faces significant hurdles, with foreign ownership regulations one of the biggest.

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

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

Limited voting rights may eventually bypass the ECA foreign ownership restrictions, but a full takeover is a completely different beast.

Therefore, in a SENS announcement released on Tuesday, 4 February, MultiChoice explained how the company will be structured post-transaction.

The part of its business that currently holds the broadcasting licence in South Africa and the entity which contracts with South African subscribers will be carved out as an independent entity known as LicenceCo.

The remainder of MultiChoice’s video entertainment assets will remain part of the MultiChoice Group.

The company explained that LicenceCo will continue to hold the subscription broadcasting licence in South Africa and contract with MultiChoice’s South African subscribers.

In addition, LicenceCo will be majority-owned by historically disadvantaged persons, including:

• Phuthuma Nathi (27% economic interest)
• Black-owned firms (Identity Partners Itai Consortium & Afrifund Consortium)
• Workers’ Trust (ESOP)

MultiChoice Group will hold 49% economic interest and 20% voting rights in LicenceCo.

The company will also retain 75% of MultiChoice South Africa – excluding LicenceCo – while Phuthuma Nathi keeps its 25% stake.

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.

The Canal+ deal and MultiChoice’s new proposed structure are currently under review by the Competition Commission and the Independent Communications Authority of South Africa (ICASA).

The Phuthuma Nathi Board has also given in-principle support, but final approval is pending.

MultiChoice assured shareholders that there would be no disruption for MultiChoice viewers in South Africa.

In addition, Canal+ promises more content and technology investment over time.

“This transaction is an opportunity to create a unique global media company with a strong presence across Africa, with the scale, expertise and creativity to compete and partner with the largest players within the media sector and beyond,” Canal+ CEO Maxime Saada said.

“I am confident that the contemplated post-transaction structure will comply with South Africa’s laws and regulations.” 

“Canal+ has placed Broad-Based Black Economic Empowerment at the heart of the transaction and is delighted to welcome in this potential structure, alongside Phuthuma Nathi, new HDP shareholders and broadened employee ownership.”

MultiChoice CEO Calvo Mawela echoed his sentiments.

“We are very pleased about the progress that has been made in relation to this transaction,” he said. 

“In a fast-evolving industry that is becoming increasingly competitive, the opportunity to combine our efforts to increase scale and bring our subscribers an even better offering is something that continues to excite us.”