Big change for DStv owner in South Africa

Multichoice says customers shouldn’t be impacted by a proposed transaction that will fundamentally change its structure in South Africa—but there may be long-term benefits for DStv subscribers.

The multimedia group recently outlined the company’s potential structure following a proposed R55 billion merger with French broadcasting giant Canal+.

Canal+ has offered to buy the remaining shares in Multichoice that it does not already own for R125 per share, valuing the group at R55 billion.

To pass, the transaction must navigate a minefield of government regulations, including risks of violating South Africa’s Electronic Communications Act (ECA) and competition regulators.

Big shifts like this also risk driving unease among existing customers, particularly DStv subscribers, who have proven to be flighty over the past few years.

Speaking to BusinessTech, Multichoice assured that none of its customers will be disrupted if the transaction goes through.

The group said the takeover should also result in better content and technology from the combined entities.

“The transaction will not lead to any disruption for Multichoice’s viewers, who will continue to access its services as normal,” the group said.

“Our focus remains on delivering the best entertainment experience to our customers.”

“A successful transaction would, in time, allow subscribers to benefit from the additional content and technology investments envisaged by the combined MultiChoice/Canal+ Group in its capacity as a supplier to LicenceCo.”

Building LicenceCo

LicenceCo is Multichoice’s creative way of avoiding tripping over South Africa’s many regulations and competition laws, which could impede the merger.

Arguably, the biggest hurdles are the broadcasting licence and restrictions on voting rights.

Under the ECA, the commercial licences needed to operate are tightly controlled, and the regulations impose strict ownership rules that limit foreign control of these licences.

No more than 20% of the directors of a commercial broadcasting licensee may be foreigners, and a foreign group may not control a commercial broadcasting licensee directly or indirectly.

This poses a huge problem for a French company that wants to buy out a South African broadcaster and licence holder like Multichoice.

According to Multichoice, the solution is to create an independent entity—LicenceCo—which, as the name implies, would house the group’s broadcasting licence in South Africa.

The entity would also contract with South African subscribers.

This company would be majority-owned by Historically Disadvantaged Persons (HDPs).

This includes the group’s Phuthuma Nathi BEE scheme, which will ultimately hold a 27% economic interest in LicenceCo, two black-owned and managed companies, Identity Partners Itai Consortium and Afrifund Consortium, and a Workers’ Trust (ESOP).

The remainder of Multichoice’s video entertainment assets would then remain part of the Multichoice Group, which would hold a minority 49% economic interest and—crucially—20% voting rights in LicenceCo.

The company would also retain 75% of Multichoice South Africa – excluding LicenceCo – while Phuthuma Nathi would keep its 25% stake.

Following this complex process would allow Canal+ to acquire the Multichoice Group fully while meeting the regulatory requirements of the ECA.

As it stands, Multichoice already limits foreign voting rights to 20% to satisfy the ECA.

Canal+, meanwhile, already owns over 45% of Multichoice—meaning it would spending an estimated R30 billion to acquire the group sans licence and subscribers.

Multichoice Group Current Structure

Multichoice Group Proposed Structure

In the end, LicenceCo would enter into various commercial agreements with Multichoice Group to ensure business continuity.

According to Multichoice, this includes the provision of content, technology, subscriber management and support and other functions.

The proposed structure has been submitted to local competition authorities and is currently being considered.

However, the ECA and Competition Commission/Tribunal are only some hurdles it will have to cross.

For the transaction to proceed, the companies must also secure approvals from the Financial Surveillance Department, the JSE, the Takeover Regulation Panel, and the Independent Communications Authority of South Africa (Icasa).

Each step poses its own challenges and potential pitfalls, but Multichoice has assured that customers and subscribers will not be disrupted by the machinations happening in the background.