Disney eyes higher stake in UTV software, may delist company

Mickey Mouse wants to consolidate his grip over his Indian joint venture partner UTV Software Communication.

According to three independent sources in the know, Walt Disney Company – the US headquartered entertainment giant and creator of iconic toons like Mickey Mouse and Donald Duck – is looking at raising its stake in the company. Sources said the move is likely to trigger the eventual delisting of the stock from the Indian exchanges as well.

Disney currently owns 50.4 per cent in the media firm through its subsidiary Walt Disney Company Southeast Asia. The Indian promoters, led by Rohinton (Ronnie) Screwvala have a 19.8 per cent stake, which is held by different entities like Unliazer Exports and Management Consultants Ltd, Unilazer Hong Kong Ltd and by Screwvala in his personal capacity.

Sources said Disney has already appointed Ernst & Young to carry on a detailed tax diligence exercise while Deloitte has been roped in for the due diligence. The investment banking mandate is still being contested among Morgan Stanley, Bank of America-Merill Lynch and Goldman Sachs.  

It is, however, still not clear how the entire exercise will finally pan out. Disney can increase its stake either by buying out the existing Indian promoters or by issuing fresh equity into the company. Both can end up leading to an open offer, which in turn will be the trigger to delist the stock going forward.

A company in India can get delisted pursuant to a delisting offer provided the promoter group owns more than 90 per cent stake.

According to unconfirmed market sources, Disney, too, will gradually up its stake towards the 75 per cent level.

However, this could not be independently verified. But sources following the negotiations said, even the issuance of fresh equity will dilute the existing Indian promoters substantially.

Sources said, the current negotiations between the two partners are being focused on the open offer price, which is likely to be at a 26 per cent premium to the current market price. The market may have factored in the expected events to this effect in the next few days. On Monday, shares of UTV Software  Communications rose more than 12 per cent to a 52-week high of Rs 748 per share and ended the day up 10 per cent at Rs 731 per share. Its current market cap is Rs 2,970 crore.

Both UTV and Disney did not respond to Business Standard’s queries. Mails sent to the spokesperson for both these companies did not get a response. UTV’s Managing Director and founder-CEO Ronnie Screwvala and his CFO Rajiv Wagle did not respond to calls and text messages either.

Disney and UTV’s relationship goes back five years when in 2006, Disney first acquired the kids’ channel Hungama TV (United Home Entertainment Ltd) which was then owned by UTV Software Communications for a reported value of Rs 142.7 crore.

In August 2006, Disney had first acquired 14.9 per cent stake in UTV Software for Rs 65 crore and 15 per cent stake in UTV Global Broadcasting Ltd (UGBL). UTV Software owns 75 per cent in UGBL.

Subsequently, in 2008, Disney increased its stake to 32.1 per cent in UTV Software. Though this stake had triggered an open offer from Walt Disney, UTV had an option to buy back 20 per cent from Disney within a four year period ending November 2012.

The approximate valuation of the entire deal is in the tunes of Rs 667 crore.

But industry sources indicate that Screwvala may not be willing to exercise this option.