MultiChoice will not be the first or last South African asset to be acquired by a foreign buyer. If Canal+ is successful in its offer (and it is likely to be), it will become the fifth major South African company to be acquired by a global company in 2019 and beyond, following Pioneer Foods, Distel, Massmart and Imperial Logistics. Become.
The continued steady depreciation of the rand against major currencies means our assets are cheaper than ever for suitors arriving in hard currencies (dollars or euros).
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MultiChoice's offer illustrates this almost perfectly. Acquiring the remaining 65% of MultiChoice at a higher premium than the initial offering price (say R120 per share) would cost Vivendi less than €1.7 billion (R34.73 billion). Canal + Group is on track to report annual revenue in excess of 3.5x his in 2023.
The official offer of R105 per share values the business on a simplistic price-to-earnings (PE) multiple of 12 times. Before the flurry of acquisition news, the group was trading at a P/E ratio of less than 9 times. This valuation becomes even more attractive based on estimates of enterprise value to Ebitda (earnings before interest, taxes, depreciation and amortization).
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Canal+ offers MultiChoice
MultiChoice ends business negotiations with Canal+
Different advantages of two corporate activities
In this case, it's more than just valuation (although that part makes the deal almost a no-brainer for Canal+).
The proposal is somewhat unique, as the French company is proposed to list as an independent entity, but first it desperately needs a DStv operator to scale up.
Last year, the number of subscribers exceeded 25 million, with 8 million in Africa and 9 million in France. At the end of September, MultiChoice had about 22 million entries (in South Africa he had nearly 9 million).
In the face of competition from global giants such as Netflix, Disney+, and Prime Video (Amazon), a 20 million subscriber business is struggling, even though around half of its revenue is generated in hard currency (euro). I can't stand it at all. chance. A pay-TV operator with nearly 50 million customers suddenly looked a lot better.
Listen/Read: Why Vivendi SE's Canal+ wants to acquire MultiChoice
And certainly there are tons of synergies to be gained from combining the groups, especially when it comes to satellite transponder leases and sports rights fees, which are the two biggest expenses for pay-TV operators.
Still, the far-from-opportunistic offer for MultiChoice (Canal+ has been steadily accumulating stock over the years) shares characteristics with other mid-cap acquisitions in recent years.
SA Inc is on sale.
PepsiCo paid $1.7 billion (R24.4 billion) for Pioneer Foods.
Heineken's acquisition of Distel valued the business at €2.2 billion.
Walmart paid less than $500 million (R6.4 billion) for the 47% stake in Massmart it didn't already own.
DP World paid less than $1 billion (R12.7 billion) to Imperial Logistics.
As well as these large transactions involving JSE-listed companies, in 2021 Consol was acquired by Ardagh Group from private equity owners for $1 billion. The acquisition by Digital Realty Trust values the data center business Teraco at $1.7 billion.
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Relatively speaking, these are small amounts.
more modest deals
Of course, smaller deals have been done before.
Linde bought the remainder of Afrox, which it did not already own, in 2020 for R2.8 billion. AVI Limited's Snackworks business attracted Mondelez's interest two years ago, but the deal never progressed. Adapt IT was sold to Canada's Volaris in 2021/22, while Grand Parade Investments agreed to sell its local Burger King business to Emerging Capital Partners just before the coronavirus lockdown.
Perhaps the country's best-known value investor, Ninety-One portfolio manager John Bickard, has been vocal about the valuation of SA Inc stock over the past few years.
Read: These 10 JSE companies are ripe for acquisition
In his December quarterly investment commentary, Mr. Biccard said: 7%), the absence of foreign investors (the Global Emerging Fund has half the weight of SA stocks in its portfolio compared to the benchmark), and (unlike in 2001) the domestic market after the lifting of offshore restrictions. Unprecedented sale of SA shares by holders. 45% for balanced funds. Domestic balanced funds now hold just 38% of their portfolios in SA stocks, compared to almost 70% 15 years ago. ”
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The largest 'SA Inc' holdings in Biccard's fund are Reunert, Life Healthcare, Caxton and Altron. While one or two of these may never be attractive to foreign suitors, Bickard says, “the low valuations of these stocks (mostly P/E ratios of 5 to 10 times and dividend yields of 4 to 10 times %) reflects market concerns about politics.” , Infrastructure Collapse and Offloading.”
“While we see these clear headwinds, the most important near-term concern is offloading, and the current valuation of SA Incorporated stock suggests offloading will become a permanent feature of SA. We disagree and see a clear path to reducing and ultimately eliminating load shedding in SA.”
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“Local markets will be volatile before the election.”
So this is a dichotomy. Many of these 'SA Inc' businesses are well-managed, growing, profitable (often with huge profits) and offer access to attractive markets (including South Africa) doing. These are sufficiently attractive that foreign companies are willing to pay premiums and deal with complex regulations to get deals done. These are so cheap that it's worth taking the risks inherent in operating in a market like this.
Local investors will not agree at all when it comes to SA Inc companies being listed on the JSE.
