French broadcasting giant Groupe Canal+ dropped a bombshell on Africa’s broadcasting industry on Thursday, announcing a firm interest in acquiring South African-listed MultiChoice Group, the parent of DStv, SuperSport, Showmax and GOtv.
The move, described by Canal+ as a “non-binding indicative offer to acquire all of the issued ordinary shares of MultiChoice that it does not already own”, could result in a firm offer. But a deal will be exceptionally difficult – if not impossible – to get over the line.
So, why is Canal+ so interested?
The answer may lie not so much in South Africa, where restrictions on foreign media ownership make a transaction exceedingly difficult, but in the opportunity across the rest of the continent. The future of African television is being built now, and Canal+ wants to lead it. It can’t do it on its own.
The French company is already a significant player on the continent, though its reach is mostly limited to Francophone Africa. MultiChoice, on the other hand, is stronger in Anglophone Africa, including South Africa, Nigeria and Kenya. On paper, a combination of the two makes sense: it would create a pan-African broadcasting powerhouse.
Canal+ has been building a stake in MultiChoice for several years already, and according to the most recent regulatory filing – in July 2023 – it holds 31.7% of MultiChoice’s equity. That’s a substantial stake, worth some R11-billion (prior to the news of its approach to the MultiChoice board about a buyout).
The Comcast threat
It’s probably not coincidence that the announcement by Canal+ of the proposed acquisition comes at the same time that MultiChoice is relaunching its streaming service Showmax, which it has developed in partnership with another global broadcasting giant (and global Canal+ competitor) Comcast, the US-based parent of NBCUniversal and the UK’s Sky.
Comcast has already acquired a 30% stake in Showmax, and MultiChoice Group CEO Calvo Mawela said recently that the Johannesburg broadcaster is open to the US firm acquiring more shares. Could that translate into MultiChoice Group shares, too? That question has no doubt been vexing minds in Paris, possibly prompting Thursday’s bombshell announcement.
But what are the chances of the deal actually happening? That’s far from clear, and there are several hurdles the French firm will have to overcome before it can consummate a transaction. These include:
- Getting buy-in for a transaction from MultiChoice Group’s board. Given the close working relationship between MultiChoice and Comcast, a deal with the US firm may be more favourable to MultiChoice management, though Mawela has said in the past that the DStv parent cooperates closely with the French firm in developing programming content. Asked by TechCentral for comment on Canal+’s approach, MultiChoice said: “MultiChoice is reviewing the letter and will at all times act in the best interests of shareholders. We will provide an update should there be any further developments. Any speculation on these matters would be inappropriate.”
- Approval of the Competition Commission is far from guaranteed. The commission has become much more muscular in its approach to the digital sector in the recent past, and will likely not give the green light to a deal such as this one without significant concessions. It could simply seek to have the transaction blocked altogether, as it has done with Vodacom’s proposed acquisition of a stake in Maziv, the parent of fibre operators Vumatel and Dark Fibre Africa.
- The biggest hurdle may, however, be insurmountable: South African legislation that prohibits foreign entities from holding more than 20% of the voting rights of a South African broadcaster. Although that might only apply to voting rights in MultiChoice South Africa – as opposed to MultiChoice Group – the South African business is a jewel in the pay-TV operator’s crown.
Asked last year for clarity on the foreign ownership rules, MultiChoice told TechCentral that although Canal+’s economic stake in the group had risen to 31.7%, it would remain compliant with the rules.
It said a provision in its memorandum of incorporation permits it to reduce the voting rights of shares so that the aggregate voting power of shares held by foreigners is kept below 20% of the total voting power in the company.
“This is to ensure compliance with certain statutory requirements applicable to South Africa,” it said. For this purpose, MultiChoice will assume all shares deposited under an American Depository Receipts programme are held by foreigners, regardless of their actual nationality. Also, all shareholders with an address outside South Africa will deemed to be foreigners unless they can prove otherwise, it said.
Although there have been moves to try to increase the restriction on foreign ownership, proposed legislation in this regard has stalled. A draft of an audio-visual services white paper has proposed increasing the limit from 20% to 49%. But little progress has happened in turning the white paper into legislation.
“The draft white paper proposes retaining the limitations in respect of foreign ownership of broadcasting services subject to them increasing to a maximum of 49% to stimulate investment,” the white paper said. Currently, foreign ownership of broadcasters is restricted to 20% of voting rights in a company, although its economic interest can be higher.
However, the white paper is far from becoming law, meaning Canal+ will have to work within the existing framework. Its options could include selling MultiChoice South Africa (or excluding it from the agreement) or possibly even agreeing not to have voting rights in the South African business that exceed 20%, even if its economic interest is far higher. But South Africa remains MultiChoice’s most important market, and such an arrangement could prove untenable for the French firm.
So, why has Canal+ announced its intentions at this particular juncture, rather than waiting for the legislative changes in the coming years that could make a deal a little easier to get done? The answer to that question probably lies in the toenadering between MultiChoice and Comcast (and NBCUniversal and Sky). Canal+ sees a fantastic opportunity to lead the next wave of African broadcasting and streaming. It probably sees Comcast’s growing partnership with MultiChoice as a direct threat to its ambition in that regard. – © 2024 NewsCentral Media