In the first and the largest deal of its kind, Mukesh Ambani-promoted Reliance Industries (RIL) has tied up with business, news and entertainment media house, Network 18, promoted by Raghav Bahl.
The deal will essentially see RIL-promoted Independent Media Trust fund the buyout of its own stake in regional news and entertainment channel network, Eenadu Television (ETV), by Network 18. Both Network18 and its subsidiary, TV18, will raise an equal amount – Rs 2,700 crore each — through a rights issue, money for which will come from the Ambani-controlled trust.
At the end of the deal, Network18 will emerge debt free. Network18’s total debt stood at Rs 2,116 crore as of September 2011.Further, the trust will subscribe to optionally convertible debentures to be issued by the promoter companies, Network18 and TV18, the value as well as the potential shareholding over the company is unknown.
“We cannot comment on the premium paid for the acquisition,” said B Sai Kumar, Group CEO, Network18 Group. “Its too early to talk about the full potential of this acquisition and what it will bring to our books, we'll discus this at an opportune moment in the future.”
In return, RIL’s subsidiary Infotel Broadband will get preferential access to all content generated by Network18’s various channels for Infotel’s pan-India broadband network.
This means that subscribers to Infotel’s broadband service will get to see all content generated by Network18 and ETV combined before subscribers of any other broadband service.
The details of the price for this content was not disclosed.
Infotel, in which RIL bought 95% stake for Rs 4,800 crore in 2010, is expected to launch its 4G services later this year.
Of the R5,400 crore so raised, Rs 2,100 crore will be used to fund the acquisition of RIL’s 100% stake in ETV’s regional news channels operating in Uttar Pradesh, Madhya Pradesh, Bihar and Orissa; 50% equity acquisition of RIL’s stake in ETV’s entertainment channels in Marathi, Kannada, Bangla, Gujarati and Oriya, and 24.5% stake ETV Telugu and ETV Telugu News, where RIL holds 49% equity.
RIL had invested R2,600 crore in ETV’s various channels for acquiring 100% stake each in ETV’s news and entertainment channels and 49% stake in ETV’s Telugu channels.
Of the remaining amount of Rs 3,300 crore, Rs 2,116 crore will be used to retire Network18 and TV18’s debts. The remaining Rs 1,184 crore will be ploughed back into the company.
Media analysts are calling the move as a masterstroke where in Bahl will continue to hold the majority stake of 58.5% even as he has an option to buy the remaining stake in the Telugu news and the entertainment channels.
“This sort of merger and acquisition in media was expected,” said Nandini Dias, COO, Lodestar Universal, a media buying and advertising major. “In future we’ll see more such movements. In a long-term regional media will add healthy numbers to the firm’s balance sheet.”
Earlier Sony was in talks to acquire ETV.
The buyout of ETV by Network18 will create India’s largest television channel network, with 24 channels spanning the genres of news, entertainment, music, home shopping, crime and reality television. Network18 also has a presence in print media through Infomedia and also publishes the Indian edition of Forbes business magazine.
Shares of Network18 jumped close to 20% to close at R46.40, while RIL closed at Rs 723.70, up 2.4%.