Big questions over foreign ownership of DStv

DStv-owner MultiChoice is facing a creeping takeover from French media company Groupe Canal+, and it is rolling out the red carpet for its new overlords.

MultiChoice’s latest annual report revealed that Groupe Canal+ increased its stake in the DStv owner to 31.7%.

Groupe Canal+ is by far the largest MultiChoice shareholder, owning significantly more than the Public Investment Corporation (12.3%), M&G Investments (7.7%), and Allan Gray (6%).

Instead of making an official offer for a large stake in MultiChoice, Canal+ used a creeping takeover strategy.

During company takeovers — when one company acquires a controlling stake in another company – the acquisition price is typically valued at a premium to its market value.

If a company does not want to pay this premium, it must approach the acquisition in a different way.

A popular way is buying a target firm’s shares in the open market and gradually increasing your stake without disclosing the motive behind the purchase.

This is known as a creeping takeover. With enough willing sellers, the acquiring company could gain a majority share in the target company without paying a premium.

Canal+ buying MultiChoice shares on the open market without any statements regarding its intentions is an excellent example of a creeping takeover.

Over the last three years, Canal+ gradually increased its stake in MultiChoice – from 6.5% in October 2020 to 31.7% by 31 March 2023.

MultiChoice said Canal+ increased its stake in the group to 30.27% in February 2023 and held 31.67% at year-end.

It added that Canal+’s share buys “garnered ongoing interest of other investors, particularly regarding their intentions”.

“While we do not comment on our shareholders or on our interactions with them, we remain committed to constructive dialogue,” MultiChoice said.

It added that it is “acting in the best interests of all our shareholders and creating sustainable long-term shareholder value”.

While Canal+’s intentions remain unknown, MultiChoice shareholders have not seen the benefits of the corporate action.

The share price is lower than in October 2020, when MultiChoice first announced the Canal+ share buying spree, and it has even fallen below the listing price of R95 per share.

Legal concerns

In its annual report, MultiChoice highlights that the Electronic Communications Act (ECA) No 36 of 2005 and its Memorandum of Incorporation (MOI) cap foreign voting rights at 20%.

However, that is not exactly what the Electronic Communications Act states. It actually says that a foreigner may not, whether directly or indirectly:

• Exercise control over a commercial broadcasting licensee; or
• Have a financial interest or an interest either in voting shares or paid-up capital in a commercial broadcasting licensee, exceeding twenty (20) percent.

The ECA explains that ‘‘financial interest’’ means an interest that may not have voting rights attached to it, but which gives the person or entity an equity or debt interest directly through shares or other securities or indirectly through an agreement giving it—

• The power to control the licensee; or
• An effective say over the affairs of the licensee;

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.

MultiChoice dismissed these concerns, saying compliance with the ECA is ensured through restrictions in their MOI, where voting rights for foreigners collectively are limited to 20%.

Daily Investor previously asked the Independent Communications Authority of South Africa (ICASA) for comment about the issue, but it did not reply.

Mandatory offer threshold approaching

The Companies Act states that acquiring a beneficial interest in securities of 35% or more in a regulated company triggers a mandatory offer.

The mandatory offer is typically to acquire all of the securities of the remaining shareholders in the company.

With a 31.7% shareholding in MultiChoice on 31 March 2023, Groupe Canal+ is fast approaching the 35% threshold.

Bloomberg Intelligence analyst John Davies expects Canal+ to stop its open market share buying soon to avoid having to make a mandatory offer.

However, it depends on Canal+’s intentions regarding MultiChoice. It may want to merge with MultiChoice or take over MultiChoice Africa.

Many MultiChoice shareholders have been hoping for corporate action to increase the MultiChoice share price.

However, there have been no signs of an offer, and Canal+ seems content to increase its stake through open market share buying.

This strategy became even cheaper for the French media giant this week when an analysis from brokerage firm J.P. Morgan downgraded the company’s share from neutral to underweight with a price target of R80 per share.

MultiChoice CEO Calvo Mawela said they have monthly engagements with Canal+ owner Vivendi and that the French media giant likes MultiChoice, its management, and its prospects.

Mawela added that their relationship with Canal+ is growing, and they are working together on many products, including content co-productions and sub-licensing content.

A version of this article was first published by Daily Investor and is republished with permission.

Now read: Why DStv owner MultiChoice’s share price is getting hammered