By Nick Hedley for Business Day
The transformation of Naspers, which was founded more than a century ago to produce Dutch-language newspaper De Burger, into an online-only behemoth is almost complete.
Africa’s most valuable company, which owns a 31% interest in Chinese internet giant Tencent, said on Monday it planned to unbundle its pay-TV business MultiChoice onto the JSE.
Naspers will hand its interest in the DStv operator to its shareholders.
Investors cheered the news. After falling 3.2% earlier in the day, in line with Tencent’s decline in Hong Kong, Naspers rallied to close 0.7% up at R3,206.42, valuing the company at R1.4-trillion.
Naspers hopes to list the new entity MultiChoice Group, which includes its local and rest-of-Africa pay-TV business along with Showmax Africa and security company Irdeto, in the first half of 2019. The unbundling will cap off a remarkable transformation at Naspers, which was mostly a publishing and pay-TV business until its 2001 investment in China’s Tencent.
Naspers would not raise funds through the deal, said CEO Bob van Dijk, but its shareholders would benefit as the market currently ignored MultiChoice when valuing the group.
In its sum-of-the-parts valuation, US bank JP Morgan calculated that Naspers’ majority-owned MultiChoice unit is worth $8bn. More than 90% of that value sits in SA, according to the bank. That implies that MultiChoice Group is worth more than Shoprite.
Van Dijk said Naspers plans to give MultiChoice SA’s BEE investors another 5% stake in the local pay-TV business. “Besides unlocking value for our shareholders, maybe more important we think it will also unlock value for [BEE scheme] Phuthuma Nathi, which is already one of the most successful broad-based BEE schemes.”
He said Naspers will continue to invest in its SA e-commerce businesses, which include Takealot, Mr D Food, PayU and AutoTrader. “In the last year, we invested more than R3bn in the e-commerce businesses in SA alone. We expect to continue to invest and we’re looking at interesting prospects.”
It will also retain its interest in Media24, which is moving quickly into online publishing. The pay-TV market was poised for further growth despite pressure from internet-based rivals such as Netflix.
“Even in markets like Europe, people still have traditional TV services and on top of that people have connected services. In Africa the story is even more positive — you see very significant growth in traditional TV … as well as decent take-up already in SA of [streaming services] DStv Now and Showmax. I’m confident it’s a growth story.
“I feel confident about putting the business on its own legs.”
Robert Pietropaolo, a trader at Unum Capital, said the unbundling would be positive for Naspers “but the pressure will certainly be on MultiChoice to stay competitive”.
“MultiChoice themselves have already started cutting their headcount and they have started offering lower-tier packages, which unfortunately does not bring in the desired revenues. MultiChoice will not only have to be nimble from now on, but I think they may have to re-invent themselves to be competitive,” Pietropaolo said.
In the year ended March, the pay-TV operator lost 41,000 premium subscribers across its African markets. Even though the total subscriber base grew — MultiChoice added 563,000 users in SA in the year to March — this growth came from far less profitable lower-cost packages. However, the company remains highly cash generative. Over the same period, MultiChoice generated revenues of R47.1bn and trading profits of R6.1 bn.
MultiChoice SA CEO Calvo Mawela said the company had slowed the decline in high-margin premium subscribers. It lost more than 100,000 of these customers in its 2017 financial year but reduced that number to about 40,000 in 2018.
“Our focus on Premium is beginning to bear fruit.… We’ll continue to focus on Premium to ensure that we do not see further decline in Premium subscribers going forward.”