Last week, MultiChoice announced that French media company Groupe Canal+ SA had increased its stake in the company to 30.27%.
Canal+ is the pay-TV arm of French media giant Vivendi, which has interests in television, film, video games, book publishing, and video hosting.
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%.
The buying spree by Canal+ sparked speculation that a bigger deal may be on the cards as it makes sense for both companies.
MultiChoice would not comment on a potential deal, only saying it kept an open mind about its relationship with Canal+ and Vivendi.
What grabbed the attention of many experts is that the deal seems to be in contravention of the Electronic Communications Act 36 of 2005 (ECA).
The 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 twenty (20) percent of the directors of a commercial broadcasting licensee may be foreigners.
ICT legal and regulatory expert Lisa Thornton told Daily Investor that Canal+’s 30% ownership in MultiChoice appears to be a prima facie contravention of section 64(1)(b) of the Act.
“It would seem that Canal+’s 30% ownership of MultiChoice is violating the Act. It seems that it would be in violation of the Act even before the latest transaction,” Thornton said.
Bloomberg Intelligence analyst John Davies said the share buying will likely end soon, as a 35% stake would trigger a mandatory offer.
“South African law restricts foreign ownership to 20% — which MultiChoice enforces via a voting-rights cap,” Davis said.
However, the ECA states, “a foreigner may not have a financial interest or an interest either in voting shares or paid-up capital in a commercial broadcasting licensee, exceeding 20%”.
Other regulatory experts, who spoke to Daily Investor off the record, said the answer might be in how the deal was structured, as the ECA prohibition is pretty clear on foreign ownership.
They added that Canal+ breached the 20% ownership threshold in July 2022. Should it breach the ECA, competitors like eMedia would have been expected to protest.
A MultiChoice spokesperson told Daily Investor their compliance with section 64 of the ECA is ensured through restrictions in their Memorandum of Incorporation (MOI), where voting rights for foreigners collectively are limited to 20%.