MultiChoice is undertaking a significant restructuring as the company gears up for its deal with French media giant Canal+.
Canal+ is looking to acquire pay-TV giant MultiChoice for R125 per share, with the deal well on its way to full approval after the Competition Tribunal recently gave it the green light, with certain conditions.
However, certain legal restrictions are in place that will require MultiChoice to restructure some of its local operations.
Specifically, the Electronic Communications Act (ECA) limits foreign control of commercial broadcasting services through strict ownership rules.
This legislation states that a foreigner may not, directly or indirectly, exercise control over a commercial broadcasting licensee. In addition, not more than 20% of the directors of a commercial broadcasting licensee may be foreigners.
Therefore, Canal+’s plan to acquire all of MultiChoice’s issued shares may run into a hurdle with this restriction.
To avoid this, MultiChoice is introducing a new structure for its South African business post-merger.
The part of its business that currently holds the broadcasting licence in South Africa and the entity which contracts with South African subscribers was carved out as an independent entity known as LicenceCo.
The remainder of MultiChoice’s video entertainment assets will remain part of the MultiChoice Group.
In a market announcement on Monday, 4 August, MultiChoice outlined how this new company will be structured.
“The reorganisation is specifically designed to ensure that the licensed entities within the MultiChoice group remain compliant with foreign control restrictions under the ECA, thereby preserving the integrity of the company’s broadcasting and signal distribution licences,” the company explained.
Currently, MultiChoice’s South African operations are held through MultiChoice South Africa Holdings (MCSAH).
The proposed restructuring will see MultiChoice dispose of an interest in the MCSAH group through a number of transactions.
For example, certain MultiChoice subsidiaries, shareholders and partners will subscribe for various classes of shares in LicenceCo.
This includes Phuthuma Nathi Investments (PN), Identity Partners Itai Consortium (IPIC), MultiChoice’s Workers Trust and 13th Ave Investments.
In effect, MultiChoice will dispose of 26% of the economic interest in LicenceCo, and 15% of the economic interest in Orbicom, its licensed signal distributor and holder of electronic communications and radio frequency spectrum licences.
Once all of the organisations involved have subscribed to LicenceCo shares, the shareholders’ economic interests and voting rights in the company will look as follows:
Canal+ deal coming to a close
With the Competition Tribunal’s conditional approval obtained and the restructuring on its way, MultiChoice and Canal+ are close to sealing their deal.
Successfully completing the restructuring is one of the tribunal’s conditions and will see MultiChoice tick many of the boxes still left to complete the transaction.
In addition, the companies have already obtained certain other regulatory approvals, including from the Prudential Authority, and third-party consents, including the approval of MultiChoice’s funders, to implement the reorganisation.
However, there are still some approvals and processes needed regarding MultiChoice’s BEE shareholder, Phuthuma Nathi Investments.
The restructuring will see Phuthuma Nathi increase its effective shareholding in Orbicom from 25% to 40%.
MCSAH will also declare a further extraordinary dividend to its shareholders – Phuthuma Nathi and MultiChoice – of R1.375 billion, of which R343.75 million is attributable to Phuthuma Nathi.
Identity Partners Itai Consortium and 13th Avenue also still need to finalise arrangements with their funders so that they have sufficient funds to subscribe for Class A Shares in LicenceCo.
“The effective date for the implementation of the reorganisation will occur only after all the suspensive conditions set out above have been fulfilled or waived,” MultiChoice said.
