Now that the MultiChoice board has rejected a buyout offer from France’s entertainment giant Canal+ in a deal worth more than R30-billion, the latter has three options. It could:

1. Walk away and not buy MultiChoice;
2. Take another stab at the deal by sweetening its buyout offer; or
3. Go the hostile takeover route.

On Monday, the board of MultiChoice rebuffed the offer by Canal+ to buy shares it did not already own in the South Africa-based pay TV company. Already owning 35.01% of MultiChoice, Canal+ wanted to shell out R31.7-billion to buy the rest of the company, paying R105 per MultiChoice share. This offer represented a 40% premium to the company’s closing price of R75 on 31 January. At Canal+’s offer of R105 per MultiChoice share, the French entertainment giant values MultiChoice at R46.5-billion.

MultiChoice has taken umbrage with Canal+’s offer, saying the R105 per share undervalues the company and its pro-growth plans. The MultiChoice board said it recently conducted a valuation exercise, which valued the company’s shares at more than R105 per share. This informed its decision not to accept Canal+’s offer.

However, MultiChoice is still open to engaging with “any party” regarding an offer, which should be based on “a fair price and is subject to appropriate conditions”. In other words, MultiChoice has left the door open for a deal with Canal+, but only if it sweetens its offer.

MultiChoice’s shares on the JSE were flat for most of Monday, even after its announcement to the market about rejecting Canal+’s offer. Its shares finished 1.1% higher on Monday, closing at R91.30 per share, suggesting that investors were happy with MultiChoice’s decision to want a higher price for the entire company.

Next steps for Canal+ after rejection

Canal+ has not announced its next move. However, it can be assumed that Canal+ might not easily walk away, considering that it argued strongly for a merger of its operations with those of MultiChoice. A combination of Canal+ and MultiChoice operations, Canal+ argued, would create an entertainment giant that has scale in the African market and exposure in countries including South Africa, Nigeria, Senegal and Cameroon.

Canal+ said an enlarged entity would also survive a television and entertainment environment that faces intense competition and declining advertising revenue. Canal+ has argued that without scale, it and MultiChoice will find it difficult to compete with the likes of Netflix and Disney Plus, which are aggressively pushing to grow their exposure into the African market.

A Johannesburg-based analyst told Daily Maverick that Canal+ could go the hostile takeover route. In recent years, Canal+ bought shares in MultiChoice, building up its shareholding in the company from 31.67% to 35.01% as of Monday.

At the 35% shareholding mark, Canal+ would be required to make a mandatory offer to MultiChoice minority shareholders, in accordance with competition rules in South Africa.

On Tuesday 6 February, the Takeover Regulation Panel (TRP), South Africa’s mergers and acquisitions watchdog, said it is engaging with MultiChoice and Canal+ on the next move after the latter increased its shareholding in MultiChoice to the 35% mark. 

“The panel confirms that it is taking this matter seriously and is currently investigating various aspects of the current status of this matter on an urgent basis,” TRP said in a statement.

“The purpose of our investigation and our engagements with the parties [MultiChoice and Canal+] … is to ensure that the panel fulfils its overarching obligation and responsibility of protecting the integrity of the market and ensuring market fairness to holders of MultiChoice’s securities.”

However, a complete takeover of MultiChoice by Canal+ would raise a complication. South African broadcasting rules are open to a foreign entity (Canal+) investing in a local broadcasting company, but put a cap on ownership. Foreign ownership of broadcasters is restricted to 20% of voting rights in a company, although its economic interest can be higher.

There is a provision in MultiChoice’s Memorandum of Incorporation that allows it to reduce the voting rights of shares held by all existing shareholders. In Canal+’s case, the board, through its discretion, would have reduced the aggregate voting power of its shares to be below 20%, even though it owns 31.6%.

Peter Takaendesa, the head of equities at Mergence Investment Managers, points out that Canal+ might find its way around the broadcasting rule as the ownership restriction applies more to MultiChoice’s South African operations while foreign shareholders are invested at a group level, which includes the company’s operations in the rest of Africa.

The reality for MultiChoice is that it also needs growth and partnership with a larger conglomerate to survive a highly competitive environment. With a customer base of 22 million, MultiChoice’s growth strategy involves investing in local and international content on its streaming service, Showmax.

MultiChoice is working closely with the global broadcasting group Comcast, which owns NBCUniversal and the UK’s Sky, to relaunch Showmax and offer international content on its streaming service. Comcast recently acquired a 30% stake in Showmax. The purchase might pave the way for Comcast to table an offer for MultiChoice and it could end up being a battle between Canal+ and Comcast for MultiChoice. DM

• Article amended to include the increase in Canal+’s shareholding in MultiChoice from 31.67% to 35.01% as of Monday 5 February.  Comments from the Takeover Regulation Panel have also been included.