MultiChoice: the money channel
Potential exists for BEE shares to double in value — despite the lock-in clause
Investors in MultiChoice’s BEE scheme, Phuthuma Nathi, were the big early winners of Naspers’s decision to unbundle the video entertainment group, as those shares shot up 44% immediately after the announcement.
Phuthuma Nathi holds 20% of MultiChoice’s SA operations, which are believed to account for around 90% of the group’s total earnings. JPMorgan has estimated MultiChoice’s value at $8bn — which would make the Phuthuma Nathi shares worth around R265 apiece, more than double their current value of R115.
Naspers has undertaken to increase the BEE stake to 25%, by topping up existing shareholders.
The Phuthuma Nathi shares trade on the Singular Systems platform, which is authorised by the Financial Sector Conduct Authority but is not a licensed stock exchange.
This means investors aren’t allowed to hold cash in their accounts for more than seven days. Only those Phuthuma Nathi investors lucky enough to have had cash in their accounts within this seven-day period were able to respond immediately to the announcement and buy more shares.
The share price shot up from R87 ahead of the announcement to R125 in early trade on Tuesday.
Most shareholders are expecting it to double from its pre-announcement level. Still, Phuthuma Nathi investors have a permanent lock-up, which requires them to sell to other BEE shareholders — implying there should be a discount on the R265.
Mustaq Brey, CEO of black-controlled investment company Brimstone, says it was not one of the lucky early traders. But he is delighted by the move, which he says is "long overdue".
Brimstone is one of Phuthuma Nathi’s largest investors and holds about 7% of the vehicle — an investment Brimstone valued at R500m at end-June.
"This valuation will probably double as a result of the unbundling," says Brey. Generous dividend payments have provided a dividend yield of around 18%. But Brey says this has been flattered by the chronic underperformance of the shares. He says corporate SA should start asking how long BEE investors have to be locked in to their investment.