Disney faces charges of up to $2.4 billion due to Star India's removal

The impairment charges stem from the merger agreement between Walt Disney and RIL aimed at creating an $8.5-billion media entity by combining Star India and Viacom18

Walt Disney anticipates non-cash pre-tax impairment charges ranging from $1.8 billion to $2.4 billion for the quarter ending March 31 due to the write-down of net assets and goodwill at Star India following its removal from the company, according to a company filing to the United States Securities and Exchange Commission, submitted on Wednesday.

The impairment charges stem from the merger agreement between Walt Disney and Reliance Industries Ltd (RIL) aimed at creating an $8.5-billion media entity by combining Star India and Viacom18.

"In connection with the transaction, the company determined that Star India should be classified as held-for-sale. In the current quarter, the company expects to record non-cash pre-tax impairment charges estimated to be between $1.8 billion to $2.4 billion, approximately half of which reflect a write-down of the net assets of Star India in order to adjust them to fair value (less estimated transaction costs) pursuant to held-for-sale accounting and approximately half of which reflect a write-down of goodwill at the entertainment linear networks reporting unit, reflecting the impact of removing Star India," the Walt Disney filing stated.

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The definitive binding agreement states that the two entities, RIL and Viacom18, owned by Bodhi Tree, will merge into Star India. The proposed merged entity will be majority-owned by RIL and Viacom18, holding a 63 per cent stake. Meanwhile, Disney will retain a 37 per cent ownership.

RIL also plans to inject $1.4 billion into the merged entity to bolster its future growth initiatives.

The filing also added that under the held-for-sale accounting framework, Walt Disney will "continue to adjust the net book value of Star India to fair value (less estimated transaction costs) until the closing date of the Transaction."

"Thus, the company may recognise incremental gains or losses each reporting period as a result of changes in the net book value and/or estimated fair value of Star India (e.g., due to operating results or foreign exchange rate changes, etc.) until the transaction has closed," the company added.