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Naspers delivers R20bn to MultiChoice BEE shareholders

Listing of unbundled entertainment business will see around 85 000 Phuthuma Nathi shareholders ‘gifted’ additional shares worth around R2.5bn.

Naspers recently announced the unbundling of the MultiChoice Group (MCG), which will be listed separately on the JSE.

Naspers – a R1.3 trillion global behemoth and South Africa’s largest company – has evolved into a cash-generative African video entertainment business and a global technology investment business. As there are few synergies between the two it makes sense to split them.

MCG is expected to be a JSE Top 40 share, with analysts anticipating a market capitalisation exceeding R70 billion. MCG has no financial debt and comprises MultiChoice South Africa Holdings (MCSA), Irdeto, Showmax Africa and MultiChoice Africa Holdings.

Source: MultiChoice Group

As part of the transaction, MultiChoice’s black economic empowerment (BEE) investment scheme, Phuthuma Nathi – which owns 20% of MCSA (and not, it is important to note, MCG) – will be ‘gifted’ a further 5% in MCSA worth roughly R2.5 billion, increasing its shareholding to 25%.

It’s a resounding broad-based BEE success story – generating 20 x return on the original investment. Around 85 000 shareholders have had some R20 billion in value created over 12 years through their R10 billion equity holding, dividends and gifted shares. MultiChoice is standing true to its ‘enriching lives’ logo!

These stellar returns have been despite the permanent trading restrictions of Phuthuma Nathi shares among black shareholders, which results in liquidity and marketability discounts. The returns and value accruing to the BEE shareholders could be further enhanced should the ‘Once empowered, always empowered’ approach be accepted, allowing the shares to trade without this restriction.

To partly address the impact of the trading restriction after listing, MCG will allow Phuthuma Nathi shareholders to exchange 25% of their pre-transaction shares for JSE-listed MCG shares, which have no trading restrictions. This should provide a further bonanza for Phuthuma Nathi shareholders, with the conversion ratios to be communicated to them in due course. Mzansi magic for sure.

MCG has 14 million customers compared to Netflix’s four million. MCG’s customers are evenly split between South Africa and the rest of Africa (RoA). However, the RoA operations are loss-making and expected to break even in the “medium term”. RoA reported a R4.6 billion trading loss in the financial year 2018, with the South African operations posting a strong trading profit of R10.4 billion. MCSA’s headlines earnings for the six months to September 2018 were R2.8 billion and the previous year’s earnings to March were R7.7 billion, reflecting a strong underlying business. Shareholders who have become accustomed to high dividends should note that no dividends will be paid in 2019, with a dividend of around R7 to be considered in 2020.

MCG has a wide, established footprint with $1 billion of investment in infrastructure over the last 10 years. Furthermore, its focus on local content, global content and sports sets it apart from competitors. High fixed broadband costs also pose a further barrier to competitors. Africa’s large population and average TV consumption of just under five hours a day exceeds the world average of three hours per day. However, RoA’s average revenue per user, at R166 a month, was half of SA’s R335 per month. As competitors will certainly be more active in this market in future, shareholders need to consider the combined impact of the above on the future business prospects.

MCG’s listing on the JSE is expected to commence on February 27, 2019. No action is required from Phuthuma Nathi shareholders in relation to the unbundling and listing of MCG shares on the JSE.

* Riaz Gardee is a mergers and acquisitions specialist and financial writer.

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Fortunately my dstv premium contract that I don’t have any longer, wont be helping to fund this transaction.

Well I suppose it’s a form of tax exchange in SA – that is better than hiding profit in yet another Chinese IPO!

Haha – you will still see their ”financial engineering” !

Long term, Multichoice is as dead as a dead thing.

Multichoice is not necessarily dead. Satelite tv and its high subscriptions are going to die slow deaths but Multichoice can still develop an alternative business model or morph into a different business – as Naspers has done more than once, and is busy doing again.

We cancelled DStv and couldnt be happier… saving around R700pm!

Mothership is juicing its engines for hyperdrive to a galaxy far far away!

Phuthuma nati clearly adds huge value to shareholders. No wonder people prefer Tencent to Naspers. Evidenced very clearly by the share price.
As much as I respect Ma Huateng as little I respect Koos Bekker( the one trick pony who took a free call option on Tencent to enrich himself and create a crooked controlling structure)

No, so far Oom Koos is a three trick pony. First he made a bundle with sattelite tv; then the investment in Tencent; and now he and his team are on the brink of making another bundle with e-commerce investments. Place a little bet on them succeeding with the third and Tencent continuing to deliver. You won’t be sorry

I havent been happy with the shows on DSTV for quite a while now. Is this where their resources are going to? The only reason I have kept my subscription is sport. Anyways once my fibre connection has been setup, it will be netflix and hopefully a sport alternative that I can stream, and multichoice will be ‘unbundled’from my house

Look carefully at the sport. It is an option but a difficult one to achieve.

If you save that R900 per month you might find it cheaper to attend those sport matches in person – and get some real quality family time.

Disappointing comments on this article.
Subscribing to Multichoice against owning a share of Multichoice are vastly different and somewhat opposing concepts; like flying with SAA against having to pay for SAA as a business through your taxes.

I stand by my comment. Long term, there is only one way Multichoice is heading. Barring a miracle, of course.

I kinda sorta feel sorry for these people receiving these handouts.

Absolutely true. But then, payment of dstv subscriptions is an emotive issue and many people respond emotionally, all the more so if they failed to invest in Naspers timeously.

Thanks Riaz. I think you’re mistaken on the 2019 dividends though.
Multichoice Group won’t be paying this year – but no mention of Multichoice SA.

MCG is committed to paying R2.5b rand dividend for the year to March 2020 but MCGSA will still pay a dividend for 2019 that will go through to Phutumanathi shareholders. Hallelujah! Hail to Oom Koos!

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