the g spot
Q&A with MultiChoice CFO Tim Jacobs
The MultiChoice offer to Phuthuma Nathi shareholders — an exchange of up to 20% of their shares in MultiChoice SA for stock in the JSE-listed MultiChoice Group — hasn’t gone down well with some. We asked MultiChoice Group CFO Tim Jacobs, why do it at all?
There’s been a small group of shareholders that has consistently over time been asking us if we could consider some kind of a liquidity event. When Naspers made the decision to unbundle the MultiChoice Group, it did two things: it gifted 5% of the value of MultiChoice SA to our Phuthuma Nathi shareholders and it made a commitment that it would do this liquidity event after the unbundling, once we were a listed company.
The reason it’s voluntary is that not all of the shareholders want to do the flip-up given that MultiChoice SA is such a high-dividend-yield company. Many of those shareholders have got such significant value over the years that a lot of them do not want to swap out, but we wanted to give the option to those shareholders [who want greater liquidity].
But you haven’t made it attractive to do the flip-up given the valuations you’ve put on the deal: R130 per PN share when some estimate that its value is closer to R200, and your adviser RMB actually has a value of R248.
Let me answer your observation in a couple of ways: the first one is that the gift that we gave of 5% of MultiChoice SA to Phuthuma Nathi shareholders — we didn’t ask for any remuneration for that. Now that we’re doing an exchange transaction, there are two sets of shareholders that have equal rights to a fair transaction: Phuthuma Nathi shareholders and MultiChoice Group shareholders. If you want to do an exchange ratio, values are about relative values. So Phuthuma Nathi owns 25% of MultiChoice SA. They are going to swap out that shareholding for a share that has the whole of SA, plus two other assets: the first one is our Irdeto technology asset, which has some of its revenue in very high-growth industries, like the internet of things; and the second part is in the rest of Africa that, while it’s loss-making, is demonstrating a very clear path to profitability — that is the part of the business that is actually showing all the growth.
When we started, the valuation range was anything from R120 a share to R220. The reason we chose not to go intrinsic value was that it meant everybody has then got to rely on the advisers and management team working on this — that our subjective judgment of what these two intrinsic valuation calculations was is the right answer.
And it was our view that because you could get almost any answer that you want, that was not the best way to go about this transaction. It was way better to use a market-related objective approach. Both of these share prices are listed, so we used the 90-day VWAP [volume-weighted average price] for both PN and MultiChoice Group.
We had advisers on our side, as MultiChoice Group, being Rand Merchant Bank, and the Phuthuma Nathi board appointed Tamela as the independent adviser to its board.
Both those parties did intrinsic value calculations to check how we had got to the exchange ratio, and both those parties confirmed that they were comfortable that the exchange ratio was fair.
The real litmus test is that between the date of the offer opening on September 25, and September 30, which was the last day our directors could trade, five of our directors elected to take up the offer.
On the Phuthuma Nathi side it was Mandla Langa, the chair of the board, and Clarissa Mack. On the MultiChoice Group side it was Salukazi Dakile-Hlongwane, Khulu Sibiya and Nolo Letele.
You say the rest of Africa is where the growth comes, but that’s where the losses are.
It’s a limited period. We will return the rest of Africa business to profitability in the medium term.
Does it affect MultiChoice Group if Phuthuma Nathi shareholders opt not to do this?
To sound blunt, it actually doesn’t make any difference to us.
This is the one time where actually, we had to be fair to two sets of shareholders.
We’re not offering them an uplift in the exchange ratio: we’re offering them a liquidity event.
What they have to weigh up is: do I stay in this MultiChoice SA investment that’s paid very strong dividends over time, or do I swap out up to 20% and take MultiChoice Group, which potentially has a big upside in its share price in the future, but comes with risk?