Canal+ used a creeping takeover tactic to slowly acquire a significant portion of MultiChoice, threatening the company’s control structure.
During company takeovers – when one company acquires a controlling stake in another company – the acquisition price is typically valued at a premium to its market value.
It means the price per share paid is higher than the market value for the acquired company.
A buyer can be willing to pay a premium for another company they want to own for many reasons.
A deal may provide synergies between operations, the combined value can be worth more than their components, and it can lower costs.
As such, acquired companies rarely sell a majority share of their firm without pricing in a considerable premium.
It would, therefore, be beneficial for a purchasing company to increase its exposure to a target company without paying a “takeover premium”.
A popular way is buying a target firm’s shares in the open market and gradually increasing your stake without disclosing the motive behind the purchase.
This is known as a creeping takeover. With enough willing sellers, the acquiring company could gain a majority share in the target company without paying a premium.
A great example of a creeping takeover is the French media company Canal+ buying a large stake in MultiChoice through open market trades.
Over the last thirty months, Canal+ gradually increased its stake in MultiChoice – from 6.5% in October 2020 to its current level of over 30%.
In February 2023, MultiChoice announced that French media company Groupe 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.
The creeping takeover strategy is likely to conclude soon as JSE regulations automatically trigger a mandatory buyout offer once a 35% ownership threshold is exceeded.
It means Canal+ would be forced to make an offer to buy all of the outstanding MultiChoice shares at this point.
Canal+ is close to this threshold level and, if it wants a majority position, it can no longer avoid paying a premium for the remainder of the stock.
It may be what Canal+ intended – buying as many MultiChoice shares at market value as possible and only paying a premium on the rest.
However, regulatory hurdles may prevent Canal+ from buying MultiChoice outright.
The Electronic Communications Act 36 of 2005 (ECA) puts limitations on 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 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. It is unlikely to be approved.
An alternative is for Canal+ to use its significant MultiChoice shareholding to gain control of MultiChoice Africa – the main prize it is after anyway.
MultiChoice Africa, which has around 12.8 million subscribers, is particularly valuable for Vivendi and Canal+ as synergies could unlock value for both companies.
MultiChoice Africa is mainly operational in South and East African countries like Angola, Botswana, Ethiopia, Ghana, Nigeria, Kenya, Tanzania, Uganda, Zimbabwe, and Zambia.
Canal+, in turn, mainly operates in francophone countries of Central and West Africa, as well as some non-francophone countries like Sierra Leone, Nigeria, Ghana, and Cape Verde.
Although there is some overlap, like in Nigeria and Ghana, the two companies focus on different parts of the continent.
Richard Cheesman, a senior investment analyst at Protea Capital Management, said the benefits of a tie-up include lower content costs, better satellite leases, and the expedited use of MultiChoice Africa’s tax losses.
Merging Canal+ and MultiChoice Africa’s subscriber bases will give a new entity better negotiation rights on satellite costs, rights on sports and movies, and channel distribution agreements.
Combining Canal+ and MultiChoice Africa’s advertising sales teams will extend their reach and improve efficiency.
A combined advertising offering reaching most countries on the continent will appeal to many global and African brands.
MultiChoice’s expertise in online streaming – DStv Now and Showmax – can also assist Canal+ in its online endeavours.
Sa Eva Nebie, head of research at Dataxis, said, although the two companies are still managed independently, an operational merger would create an undisputed pay-TV leader in Africa.
Nebie highlighted that Canal+’s ultimate intentions remain undetermined.
However, its investment in and closer ties with MultiChoice give it more control over the African market, which will count more than 1.3 billion people by 2027.
“This strengthened collaboration would make it all the more difficult for new entrants to penetrate an already concentrated market with success,” Nebie said.