Dish TV-Bharti Airtel deal called off due to differences over valuation

Essel promoters are now in talks with a global financial investor to pick up half their stake

The deal between Subhash Chandra’s Essel group, the promoters of direct-to-home (DTH)) company Dish TV, and Sunil Mittal’s Bharti Airtel has been called off due to differences over valuation. The promoters are now in talks with a global financial investor, which has no operations in the country, to pick up half their stake.  

The cash generated from such a sale will be used as part of the plan by the Essel group to buy back 5 per cent in flagship company Zee Entertainment Enterprises (ZEEL) in the next 12 months. According to sources close to the discussions, it expects to get around Rs 2,000 crore from the deal. The talks with Bharti Airtel were over the latter buying the promoters’ stake.  

The first offer to buy the Zee shares will be given to the existing financial investors, which include Oppenheimer with a 19.86 per cent stake, as well as GIC, which has around 10 per cent, besides others. With this, the promoters, who are currently in a minority, will be able to increase their stake from the current 5 per cent.

The game plan is eventually to go up to 26 per cent, say top sources close to the Essel group though a group spokesman declined to comment on the issue.

The promoters of ZEEL are also in talks with a US-based strategic investor to pick up a 26 per cent stake in the company. Sources say the potential investor is willing to allow the promoters to manage the company as part of the tentative discussions for a deal.  

With operating revenues of Rs 6,166.1 crore, Dish TV has a market capitalisation of Rs 2,046 crore. It has a subscriber base of 23.94 million, putting it neck-and-neck with Tata Sky, which is just a whisker ahead. But Dish TV’s subscriber base is far ahead of Bharti Airtel’s 23.39 per cent share of the 69 million subscribers in the DTH market.

Bharti Airtel has been looking at expanding its DTH operations in order to take on Reliance Jio’s aggressive strategy to reach homes through fibre-to-the-home and bring in high speed broadband. Had it worked out, the acquisition of Dish TV would have catapulted Bharti Airtel into the position of the largest player in the DTH market with a market share of over 54.62 per cent, overtaking Tata Sky.

Bharti Airtel has followed a dual strategy. Apart from DTH services, it is also the second largest player in fibre-to-the-home with 2.2 million broadband users. This puts it behind BSNL but far ahead of Reliance Jio which has over one million users.

However, last year Reliance Jio bought Hathway and Den Cable which both have fixed broadband customers. The Essel group has been gripped by serious financial crises due to its foray into infrastructure projects for which it took loans by pledging ZEEL shares. It has been trying to improve its finances. 

Currently, it has to pay back loans of around Rs 2,500 crore which it hopes to finance through the sale of 14 road projects. If it fails to sell some of these assets, it will, as a last resort, go to the IBC for redress. The Dish TV deal is important for Essel because it will generate the cash it needs to buy back part of the shares in ZEEL.