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MultiChoice deal to be built on broad-based shareholder base

September 30, 2006
MultiChoice deal to be built on broad-based shareholder base. Check it out:
(Business Day (South Africa) Via Thomson Dialog NewsEdge) MultiChoice deal to be built on broad-based shareholder base NASPERS has carried out a black economic empowerment deal through MultiChoice. SA's biggest media group has agreed to sell a 15% stake in the lucrative pay-TV unit to black investors for R2,25bn.



Last night Face to Face's spoke to Gavin Joubert from Coronation Fund Managers and to Koos Bekker from Naspers about the new deal.

Gavin, you're a big fan of Naspers what do you make of this deal? It seems fairly straightforward, and an important step Yes, I think it's a reality of doing business in SA that every big corporate will get a black economic empowerment (BEE) deal done. From the BEE participant's point of view I think the R15bn effective valuation of MultiChoice SA is a very good price. Obviously, for shareholders there is some dilution that would be below what we would value MultiChoice SA at. But we were expecting it, and it's not too far off the dilution that we were expecting. Therefore it doesn't change our view on the company and the share. What do you value MultiChoice SA at? Our valuation for MultiChoice SA, which is where the deal has been done, is just over R22bn or quite substantially ahead of the R15bn. The R15bn includes about 29% of M-Net Supersport and 100% of M-Web SA; but the bulk of that R15bn would be MultiChoice SA so that's about R22bn compared to R15bn. They gave an enterprise value of about R17,5bn as well. Naspers has been very busy with a big deal in Brazil recently, and there have been a few other things besides do you think they are going in the right direction? Yes, their stated strategy is to invest within their core competencies pay-TV, print media and internet within the Bricsa countries that include Brazil, Russia, India, China and sub-Saharan Africa. In those countries typically gross domestic product (GDP) growth rates are far above what you would see in most countries round the world typically with a GDP of about 5%-7% as opposed to about 2%-3% in the developed markets. Advertising spend is growing at a much faster rate in those countries, employment is growing at a faster rate, and so is disposable income. So I think those are good countries to have media exposure to. The key is valuations. With their most recent acquisition in Brazil the valuation was reasonable. I think the strategy of investing in high-growth countries at reasonable multiples will serve shareholders well in the years ahead. Koos, can you tell us a little bit more about the mechanics of the MultiChoice deal? Yes. We have in mind to create a broad-based scheme. We don't want a single mogul but a broad spread of teachers, clerks and ordinary people and hopefully in the tens of thousands. We've set aside 15% of MultiChoice, which was announced today, and hopefully tomorrow you'll hear a similar announcement for Media24. At this stage we intend to sell 15% of all the South African companies. The idea is that we will fund 80% of it by way of preference shares, with the participants funding 20%. So it's going to have a dilutionary effect? Yes, definitely. There is no way you can avoid it. I've just been speaking to Gavin Joubert. He values MultiChoice at R22bn whereas you value it at R15bn with an enterprise value of R17,5bn why the discrepancy? Gavin is more optimistic. He is a highly respected and very experienced commentator, so I ought to be careful. We got Investec to value the companies. Clearly, we want to reach a fair value, one which is fair to the participants entering the deal, but which is also fair to the current investors. Their decision was R15bn which I think is just about fair. If it were too expensive, no one would participate, and if it were too cheap we would be eroding our current investors. Can you tell us about the choice of partner? We want ordinary people as partners, and the happy circumstance in both MultiChoice and what you'll hear tomorrow at Media24 is that both companies are profitable, so we can pay dividends. The idea is that we will pay dividends from day one. We have run three schemes so far the Phuthuma scheme in M-Net in 1995, another one in 1998, and now we have the Welkom scheme in Naspers. All of them closed out in the money, and all of them made, I think, a very good return. One problem we've always experienced is that when you do a scheme and five years elapse at the end of it you find some people have divorced, some have moved and some have died and you've lost contact. So the idea with paying dividends which is quite a novelty is to keep contact with people every year. We have to pay an amount into their accounts, and consequently we need to trace them and connect to their physical address. New entrants have been proposed for the pay-TV arena in SA would you welcome the new competition or would that be a threat? Although MultiChoice has always been fairly competitive, it is not something you need to have because one can see a movie either in a cinema, get it from a video rental shop, or one could wait for free TV. We slot into a distribution chain where we compete against the other members so the competition will be more direct, but it will not really change the architecture of the industry we're in. Gavin, Koos seemed fairly sanguine about competition. Do you think there could be a player who could take a chunk of the subscribers? I think it would be very difficult for a competitor to come in and take a decent chunk. There is room for a second player, but MultiChoice owns the content so it depends on how much regulatory interference there is. The Naspers N shares closed at R122 today, up 1,3%. Do we stay long or should we add here? We would be adding. Summit TV is broadcast each weekday from 7pm to 11pm.

Copyright 2006 Times Media Ltd.. Source: Financial Times Information Limited - Europe Intelligence Wire.


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