Analysts have cautiously welcomed the deal struck by MultiChoice and Phuthuma Nathi (PN) shareholders.
On Monday, the JSE-listed pay-TV operator announced its recent offer to PN shareholders to exchange up to 20% of their shares for MultiChoice Group shares had been accepted.
Additionally, MultiChoice said the PN shareholders voted in favour of the proposal to combine the two broad-based black economic empowerment schemes, PN 1 and PN 2, into a single entity.
This transaction will see an exchange of 0.97 MultiChoice shares for every one Phuthuma Nathi share.
Analysts say, in effect, MultiChoice will acquire nine million PN 1 ordinary shares and up to 4.5 million PN 2 ordinary shares.
Increasing stake
In turn, a total of 13 billion MultiChoice ordinary shares will be issued. This will result in MultiChoice Group increasing its stake in the South African unit from 75% to 80%.
The offer from MultiChoice to PN shareholders is scheduled to close on 28 October.
MultiChoice says the purpose of the proposed acquisition is to provide PN shareholders with an opportunity to gain exposure to the rest of MultiChoice Group's assets, while providing additional liquidity to PN shareholders through the JSE-listed MultiChoice Group shares.
Peter Takaendesa, portfolio manager at Cape Town-based Mergence Investment, says: “The underlying issue, which is important for shareholders to consider, is whether they want cash or higher risk exposure to the potential growth of the rest of Africa?
“Getting group shares gives one liquidity when they want to trade their shares but one has to deal with losses from the rest of Africa and potentially lower dividend payouts. The business is heavily loss-making and may take up to three years to fully cover its costs (break-even), according to the management.”
Further, Takaendesa says MultiChoice “is struggling in many markets. As it stands, all the cash is coming from the South African operations and not the rest of Africa. We are not putting much value on the rest of Africa operations at this stage given high execution risks in turning the operations around, although there is potential for growth over the long term.”
Ajay Lalu, MD of BEE consulting firm Black Lite Consulting, welcomed the combining of the empowerment schemes into a single entity.
“I think it’s not necessarily a bad thing combining one and two. I think most deals have been single transaction and only MultiChoice had been trading parallel to each other,” he says.
Important steps
“It is very pleasing that shareholders have given their approval to these important steps,” says Mandla Langa, chairman of PN. “This means the share exchange can proceed given that these conditions have been met.
“The offer enables our shareholders to voluntarily exchange up to 20% of their PN shares for MCG shares, which is in response to those shareholders who have been asking for this opportunity. Phuthuma Nathi shareholders have always had a stake in the same entity, MultiChoice South Africa, and the combination allows us to have a single entity with a single share price.”
Additionally, Langa says: “MCG is now offering Phuthuma Nathi shareholders an opportunity for further value creation from exposure to the broader MultiChoice Group, whilst also enhancing MultiChoice’s key imperative to extend its commitment to broad-based economic transformation in South Africa.”
PN is said to be one of the most successful B-BBEE schemes in South Africa. As part of MultiChoice’s listing on the JSE, PN shareholders received an additional 5% share in MultiChoice South Africa, increasing their stake in the group’s South African operations to 25%.
This share exchange opportunity will enable PN shareholders to have exposure to the broader MultiChoice Group, which includes MultiChoice SA, MultiChoice Africa, Showmax and Irdeto, with shares that are listed and freely tradable on the JSE. PN shareholders that elect to participate in the offer will retain shares in both PN and MultiChoice Group.
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