However, this deal faces several hurdles, and if it can overcome these challenges, it will take years to go through.
MultiChoice’s results for the six months through September 2024 revealed that the DStv-owner’s struggles persist.
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, with MultiChoice remaining technically insolvent. The company’s negative equity increased by 155% to R2.7 billion in the six-month period.
In addition, MultiChoice’s DStv and other subscribers plummeted from 16.7 million to 14.9 million over the last year. This includes a 5% reduction in South Africa and a 15% decline in the Rest of Africa.
MultiChoice has identified some silver linings, and plans are in the pipeline that could improve this situation.
For example, the company is set to close a deal with Sanlam soon that will significantly improve its balance sheet and wipe out MultiChoice’s negative equity.
MultiChoice expects to recognise an accounting gain of R2.6 billion to R3.3 billion from this deal.
In addition, the company said Showmax has reached its investment peak and should soon start to make a positive contribution to the group’s results.
MultiChoice’s streaming platform has been a drain on its results for years, and its recent rebrand saw the company burning cash to make it happen.
In this six-month reporting period alone, MultiChoice invested an additional R1.6 billion in Showmax, even though the streaming platform has yet to break even.
Another major concern for the company is its declining DStv subscribers. For years, MultiChoice has seen its pay-TV subscribers dwindle.
MultiChoice CFO Tim Jacobs told Daily Investor that this was largely driven by pressure coming from the middle market.
This segment has been significantly strained in recent years, as the high cost of living left them little discretionary spending. This saw thousands of households dump or downsize their DStv packages, hurting MultiChoice’s income.
Therefore, MultiChoice needs to make significant changes to remain sustainable, much less return to profitability.
Luckily for the technology giant, it has a potential lifeline – French media giant Canal+, which has offered to buy MultiChoice for an estimated R55 billion.
Canal+ is a significant MultiChoice shareholder and has steadily increased its stake over the past few years.
The company hit the 35% shareholding threshold at the beginning of this year, triggering a mandatory buyout offer.
After some back-and-forth, Canal+ offered MultiChoice R125 per share, valuing the company at around R55 billion.
Due to its already substantial stake – Canal+ currently owns around 45% of MultiChoice – the buyout will cost Canal+ an estimated R30 billion in cash.
This cash injection would not only solve many of MultiChoice’s financial woes but also leave the company with a significant sum of cash to reinvest in its business.
In addition, the synergies between Canal+ and MultiChoice’s operations could see the companies rule pay-TV in Africa.
MultiChoice already has substantial reach in Africa, and Canal+’s presence in the continent’s Francophone countries would allow them to essentially control Africa’s pay-TV market.
MultiChoice and Canal+’s current reach in Africa can be seen in the image from The Outlier below. This makes it clear that combining their forces would make both companies the undeniably dominant provider in Africa’s satellite TV market.
Therefore, this Canal+ deal presents a lifeline for the struggling MultiChoice. However, making this deal happen is easier said than done.
For one, Canal+ is a French company, which triggers specific concerns under South African law.
Specifically, the Electronic Communications Act (ECA) is the most important regulatory hurdle that has plagued Canal+ since it started buying up more MultiChoice shares.
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.
- No more than 20% of the directors of a commercial broadcasting licensee may be foreigners.
Previously, MultiChoice and Canal+ have been able to work around these restrictions through a Memorandum of Incorporation (MOI), where voting rights for foreigners collectively are limited to 20%.
However, a complete takeover of the kind MultiChoice and Canal+ are looking to make happen is an entirely different story.
While not insurmountable, the ECA presents a significant hurdle for this deal.
Another hurdle for this deal will be convincing the Competition Commission that it would not hinder competition in South Africa’s pay-TV market.
MultiChoice has already submitted its application for this deal to the commission.
Jacobs told Daily Investor that MultiChoice is also now in the process of working with Canal+ and the Competition Commission to submit applications in other jurisdictions where this deal would apply, mostly in Africa.
“There’s no overlap in many of the markets that we operate in. So, we’re not anticipating this being anticompetitive, but we also are aware that the CompCom process takes quite long,” he said.
Looking at previous similar deals that have been through the Competition Commission, it could take years for MultiChoice and Canal+’s deal to be approved or rejected.
Earlier this month, Vodacom received a blow when the Competition Tribunal issued an order prohibiting its investment in Vumatel and DFA-owner Maziv.
While there is still a possibility that Vodacom may appeal this decision, just reaching this point took the competition authorities three years and several hearings spanning 26 days.
This long waiting time is also the case for deals that are not considered anti-competitive.
Heineken’s acquisition of Distell, one of South Africa’s largest alcohol producers, was a major deal that took about two years to gain full approval from the Competition Commission and Tribunal.
The transaction was first announced in November 2021, with Heineken planning to buy Distell and Namibia Breweries and then merge these assets into a new joint venture.
After detailed scrutiny and several rounds of negotiations, the deal was finally approved by the Competition Tribunal in March 2023, and the deal finally closed in April 2023.
Therefore, even if MultiChoice and Canal+’s deal gets the green light from both a foreign ownership and competition perspective, it will take years to reach that point.
However, Jacobs said the companies are working with CompCom and the Independent Communications Authority of South Africa (ICASA) to streamline the process and try to close the deal as quickly as possible.
“We don’t think that we need to do any approvals through ICASA, but we are in discussions with them to bring them along the journey and make sure that that their understanding and our understanding are the same,” he said.
“So, we’re basically working with with both sets of regulators at the moment and just making sure that that everyone is comfortable with what we’re doing.”
Regardless, until this deal is approved or rejected, MultiChoice will need to ensure that its financial position is more sustainable than shown in these latest results since its lifeline may take years to arrive.
This article was originally published by Daily Investor
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