Shareholders in Phuthuma Nathi, MultiChoice’s BEE vehicle, are in limbo on whether to stay invested in the scheme as French broadcaster Canal+ looks to buy the Johannesburg-based pay-TV business.
For now though, this block of shareholders appears to be safe if a deal is to go through.
Last week, Canal+ increased its offer for MultiChoice to R125 a share as part of its mandatory offer to the pay-TV operator’s shareholders for shares it doesn’t already own.
At the start of February, Canal+ offered R105 a share, or just more than R31bn, in what would have been the biggest merger & acquisition deal so far in SA in 2024. But the owner of DStv rejected the bid as too low, despite the price being at the top end of the target range that analysts and brokers have for the stock.
Phuthuma Nathi’s main asset is its 25% holding of MultiChoice’s SA business, meaning the mandatory offer doesn’t affect them directly, though they would probably prefer things to remain as the are.
“It all depends on whether Canal+ can persuade the SA broadcasting authority that they no longer need BEE,” said Anthony Wilmot, founder of The Integrated Exchange (I-Ex), which specialises in BEE companies.
“If this were to be the case, then I have a feeling that there might be a liquidation event for Phuthuma Nathi shareholders. If that’s not the case, I can’t see why they would want to change the structure. The structure works. They’ve invested a lot of time and energy,” he added.
The scheme was created in 2006 when MultiChoice was still a wholly owned subsidiary of Naspers, with an initial public offer (IPO) that year and a second in 2007. The shares began trading publicly in December 2011 and now also trade on I-Ex, formerly known as Equity Express Securities Exchange.
Peter Takaendesa, head of equities at Mergence Investment Managers, said it was difficult to say how the Canal+ deal would affect Phuthuma as the proposed deal was taking place at group level, not MultiChoice SA level.
“There is a chance they could benefit if Canal+ offers them more ownership of the SA business. It’s difficult to say at this stage but it looks like their position is unlikely to deteriorate.”
Canal+ had a 31.67% interest in MultiChoice when it proposed the offer, then raised its stake to 35.01% after the deal’s announcement — just above the threshold that requires a mandatory offer to shareholders.
The French operator is certainly aware that broad-based BEE (BBBEE) is important to how it engages with MultiChoice, saying on February 1, when it made its initial offer, that it recognised “that the economic transformation of SA is an imperative”.
“We are fully committed to the combined group being ‘best in class’ in terms of BBBEE and participation of historically disadvantaged groups, and acknowledge the key role played by Phuthuma Nathi in this regard,” said Canal+.
Part of the rationale for setting up Phuthuma was to fulfil requirements under the broadcast licences issued by the Independent Communications Authority of SA (Icasa) to MultiChoice SA, which requires the company to maintain at least 30% ownership by historically disadvantaged groups.
Phuthuma Nathi is said to be one of the most successful BEE schemes in SA, mainly due to the consistent flow of dividends to shareholders. The scheme has 76,961 investors, according to the latest figures from MultiChoice, who have received a combined R17.8bn in dividends from MultiChoice SA.
“The biggest counter on our exchange, Phuthuma Nathi trades about 5% of its issued shares every year, which is reasonable,” said Wilmot, whose exchange has traditionally specialised in BEE counters, including Motus’ Ukhamba.
“We average about R1.5m-R2m a day” in the value of Phuthuma Nathi shares traded. “So the average investor can get in and out quite comfortably.”
Phuthuma has between 20 and 50 trades a day “so there is decent liquidity”.
“Everybody has forgotten that when that scheme was formed back in 2007, they paid R10 per share ... the share is currently trading at R100 and dividends have been north of R20 a share for the past five years, so they’ve had a superb investment,” said Wilmot.
MultiChoice Group holds a 5.7% stake in Phuthuma Nathi after a share swap in 2019.
MultiChoice said the strong financial performance by its SA unit “enabled substantial dividend payments to Phuthuma Nathi”, thereby enabling the scheme to repay its vendor loan to finance the BEE deal in 2014 — two years ahead of schedule — even while maintaining dividend payments.
After the loan was settled Phuthuma Nathi shareholders received their first full dividend payment amounting to R1.2bn. The latest dividend of R1.4bn was made in September 2023.
Phuthuma shares closed at R97.20 on Friday, giving the scheme a market cap of just more than R6.56bn. Over the past 12 months, the counter has traded at a high of R160 and a low of R60.
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