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In a market where global media companies are consolidating, merging and banding together, France’s Canal+ sees a tie-up with MultiChoice as a logical move without which the DStv operator faces an uncertain future.

MultiChoice said last week it received a nonbinding indicative offer from Canal+ to acquire all its issued ordinary shares that the French group does not already own, subject to regulatory approvals.

Canal+, recently spun out of one of the world’s biggest media conglomerates, Vivendi, has pitched the transaction as an opportunity to create an African media business powerhouse with operations in markets on the continent, from SA and Nigeria to Senegal and Cameroon.

“Should this combination not proceed, this lack of scale is likely to become a more acute problem in the coming years, risking the company’s status as the pre-eminent media company in Africa and affecting its midterm trajectory,” said the French group. 

MultiChoice needs to make a deal with someone, or risk not reaching the scale it needs. 

Global media consolidation, also known as media concentration or convergence, is on the rise. It refers to the trend of fewer companies controlling a larger share of the media landscape. Increased competition and declining advertising revenue are among the reasons that have driven media companies to merge and seek economies of scale.

The French company aims to pay R105 per share for the DStv operator, which would represent a premium of 40% to MultiChoice’s closing share price of R75 on January 31. It translates to a valuation of R46.5bn for Africa’s largest pay TV group. 

MultiChoice understands that it needs to grow its base of customers, now at 22-million households. Much of its strategy, driven by an investment in local content for the various countries in which it operates, is geared towards this mission. 

Better suitor

While Canal+ is looking for a full merger or combination of the two businesses — a European giant and an African powerhouse coming together — its Johannesburg compatriot appears to have been alive to the power of international partnerships for some time. In addition to content deals with Hollywood studios and others that have bolstered its DStv offering for decades, the group has recently revamped its online streaming service Showmax in union with US giant NBCUniversal. 

Yet, Canal+ sees itself as a better suitor. 

“It’s interesting that they [MultiChoice] have engaged with Comcast [NBCUniversal], which has no history of investing in Africa. We’ve been in Africa for more 30 years,” chair and CEO of Canal+ Maxime Saada told Business Day. 

“We really believe that going forward, a key differentiating factor for this combination will be to produce world-class African content, [to]  put it out and export it at a global level and scale. We’re super confident about this combination. Not only do we think it’s required, but it’s very exciting.”

A handful of major media conglomerates dominate the global market, including Disney, Warner Brothers, Sony, Discovery, Comcast and News Corp.

In March 2022, Amazon acquired MGM Studios. This $8.5bn deal was done to expand Amazon’s Prime Video library and content production capabilities. A month later Discovery merged with Warner in a $43bn deal, creating a media giant with a vast portfolio of TV channels, streaming services and film studios.

“The two key elements in a pay TV business are how much resources you can allocate to content, and how much ... to technology. On these two elements, the scale of the new company will be super exciting,” said Saada. 

Market players agree that such a deal could help MultiChoice to compete globally. 

Solid foundation

Peter Takaendesa, head of equities at Mergence Investment Managers, said, “Changes taking place in the industry and competition from global streaming giants require solid scale and balance sheet to prepare the business for long-term sustainability.

“The parties to this transaction need each other in the fight against global streaming giants as they can leverage content and financial strength. There is still no guarantee of success, but it would, if concluded, give them a solid foundation in addition to the Comcast partnership in streaming.”

While the global economic slowdown has affected a number of businesses, growth is expected for African entertainment.

According to PwC, growth in SA’s entertainment and media market stabilised in 2022. However, it is still expected to outpace the global average. Nigeria is expected to have the strongest growth in entertainment and media revenue, with revenue expected to more than double from 2022 to 2027. 

For some time, investors in MultiChoice had been concerned and speculated about the intentions of deep-pocketed Canal+, which has been aggressively buying up shares since 2020.

Canal+ started building its stake with an initial purchase of 6.5%. It now owns 33% of MultiChoice, not far from the 35% mark that would trigger a mandatory offer to minorities under SA’s takeover rules.

The French operator is preparing for its own listing and says a combination with MultiChoice would give more opportunity to benefit investors. “Our ultimate goal [is] to also obtain a listing in SA,” Canal+ said. 

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