France’s Groupe Canal+ and its acquisition target, JSE-listed Multichoice Group, have hinted at how they will seek to get around strict restrictions on foreign ownership of broadcasters in South Africa if their deal is given the go-ahead by shareholders.
The two companies issued a joint circular (PDF) to shareholders on Tuesday in which they set out in more detail the terms of the proposed mandatory all-cash transaction, valued at $6.7 per MultiChoice share.
There’s still no detailed clarity, however, on exactly how they intend to navigate the restriction, which is contained in the Electronic Communications Act and which prohibits foreign entities from holding more than 20% of the voting rights of a South African broadcaster.
This restriction in the ECA may prove to the biggest stumbling block in the way of consummating the deal between the two companies.
“Canal+ and MultiChoice are respectful of all applicable laws and regulations relating to the sectors in which they operate,” the two firms said in the joint circular.
“Certain entities within the MultiChoice Group are subject to the applicable laws in the electronic communications sector in which MultiChoice operates that have foreign control restrictions. These include section 64 of the ECA, which places certain restrictions on foreign entities (such as Canal+) in respect of commercial broadcasting licensees,” they said.
“In light of the duty on Canal+ to make a mandatory offer for the MultiChoice shares, Canal+ and MultiChoice are in the process of assessing and finalising suitable structuring options and potential transactions, which may be undertaken by the MultiChoice Group on or shortly before the closing date to ensure compliance with the applicable limitations on foreign control while also maintaining MultiChoice’s broad-based black economic empowerment credentials,” they said, without elaborating.
The parties have, however, given themselves until April next year to finalise the offer to MultiChoice shareholders, allowing them time to figure out the best way of achieving this outcome.
But they’ve hinted strongly at how they intend to deal with the ECA foreign ownership restriction.
“In terms of the cooperation agreement … MultiChoice shall take such actions or series of actions as may from time to time be agreed in writing between Canal+ and MultiChoice to ensure compliance by the MultiChoice Group upon closing date with the ECA and certain other applicable laws and regulations promulgated under the ECA and the Icasa Act.”
No agreement has been reached between the parties in this respect, but MultiChoice and Canal+ may agree to:
- A corporate reorganisation of the MultiChoice Group; and/or
- Participation by one or more local B-BBEE partners; and/or
- Mechanisms to limit the voting rights of foreigners and/or a limit to MultiChoice’s voting rights over the licensed entities in the MultiChoice Group.
“Canal+ and MultiChoice will provide further details in this regard (including any transactions in connection therewith) as soon as reasonably practicable.”
Meanwhile, an independent board has reviewed the valuations prepared in an independent expert’s report and concluded that the terms and conditions of the Canal+ offer of $6.7 share are fair and reasonable to MultiChoice shareholders. “It has therefore recommended the offer to MultiChoice shareholders in the event of it becoming unconditional.”
