Why MultiChoice received a R30-billion buyout offer — and why it said no

Groupe Canal+ was likely forced to make an offer to acquire MultiChoice after exceeding the 35% shareholding threshold set by the Companies Act and its associated regulations.

MultiChoice revealed on Monday that Canal+ now holds a 35.01% stake in the company, confirming speculation that the French media giant had acquired more shares in the DStv owner.

However, the South African pay-TV operator indicated that it was unsure whether Canal+ was indeed compelled by law to make a mandatory offer.

It also calls into question whether Canal+’s public offer constitutes a proper “mandatory offer” as stipulated in the Act.

“MultiChoice has requested the [Takeover Regulation Panel] to make a ruling as to whether a mandatory offer must be made to all holders of ordinary shares in the Company under section 123 of the Act,” it stated.

Canal+ announced its offer to the media on Thursday, 1 February 2024.

MultiChoice rebuffed its French suitor’s advances Monday morning as the JSE’s news service opened.

“After careful consideration, the board has concluded that the proposed offer price of R105 in cash significantly undervalues the Group and its future prospects,” MultiChoice said.

MultiChoice said it recently conducted a valuation exercise that valued the company “significantly above” R105 per share.

“MultiChoice’s valuation [also] excludes any potential synergies which may arise from the envisaged transaction,” it stated.

It also took the opportunity to offer some biting remarks about how Canal+ handled the situation.

“The delivery of the Canal+ letter [to the board making the offer] took place after discussions between Canal+ and MultiChoice lasting for well over a year,” MultiChoice stated.

“Following the delivery of that letter, Canal+ and its representatives have extensively discussed their proposal in public and with members of the press.”

DStv Streama media box, showing buttons on the remote for Showmax, YouTube, and Netflix

Protea Capital Management senior investment analyst Richard Cheesman said MultiChoice’s response was an expected negotiation strategy.

“Canal+ did not say that this is its best and only final offer,” he said.

“If you look at Anheuser-Busch InBev’s acquisition of SABMiller [in 2016], there were seemingly similar exchanges.”

Cheesman said it was surprising that Canal+ had exceeded the 35% shareholding threshold and triggered a mandatory offer.

He would have expected Canal+ to sit just below the threshold until its negotiations with MultiChoice over a suitable buy-out price had concluded.

Regarding MultiChoice’s statement that Canal+ undervalued the company, Cheesman said a value above R105 per share could be justified.

MultiChoice’s main money-spinner remains its South African operations.

However, this part of the business is in decline as high-end DStv Premium and even mid-tier Compact subscribers switch to streaming rivals like Netflix.

SuperSport remains DStv’s crown jewel, but subscribers who don’t want or can’t financially justify its comprehensive sports offering are cancelling their subscriptions and switching to cheaper streaming options.

“Canal+ is probably more excited about MultiChoice’s assets other than the core South African pay-TV business,” Cheesman said, explaining that its local market is much more mature than the rest of Africa.

MultiChoice’s Rest-of-Africa operations started contributing to the bottom line again in its 2022/23 financial year, while its Irdeto technology business has been a consistent performer.

However, its gambling subsidiary KingMakers and on-demand streaming service Showmax have been a drag on earnings.

Regarding the likelihood of a hostile takeover attempt, Cheesman said it’s not impossible, but it would make an already challenging deal even more difficult to get across the line.

“Canal+ really needs everyone — management and shareholders — on board to give the potential deal the best chance of succeeding,” he said.

He said that a hostile takeover would be extremely difficult considering all the realities of South Africa — from the politically fraught business landscape to the 20% restriction on foreign voting rights of media companies.

The Takeover Regulation Panel declined to comment on whether Canal+ could keep buying MultiChoice shares after exceeding the 35% threshold.

“We do not engage in conversations with the media regarding these issues. Instead, we communicate through the Panel’s official communication channels, namely, its SENS platform, or directly with the parties involved,” TRP deputy executive director Zano Nduli told MyBroadband.

MyBroadband recently analysed Canal+’s creeping takeover of MultiChoice to estimate how much it paid for its 35% stake.

MultiChoice has disclosed Canal+’s steadily increasing shareholding on several occasions and provided details on how many shares Canal+ owns in its annual reports since 2021.

The timeline above overlays MultiChoice’s share price with its disclosures about Canal+ since 2019.

For our estimate, we assumed that where there was a sharp rise in MultiChoice’s share price just before a disclosure, it was likely due to Canal+’s buying activity.

We averaged the share price over these periods to calculate an estimate.

Using this method, we calculated that Canal+ spent roughly R17.2 billion for its current 35.01% stake in MultiChoice at an average buy-in price of R111 per share.

To buy the remainder of the company, it would have to pay close to R30.2 billion for a total purchase price of R47.4 billion.

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Why MultiChoice received a R30-billion buyout offer — and why it said no