Talks in final stages, share swap likely.
Months after talks between Multi-Screen Media (MSM), which runs Sony Television in India, and the Ramoji Rao-owned Eenadu TV (ETV) fell through, the Raghav Bahl-controlled Network18 Group is inching close to a deal with ETV.
According to five independent sources, Network18 Group is likely to merge ETV’s bouquet of 11 regional channels and one Telugu news channel with itself through a share swap.
In one sweep, then, the Network18 Group would get a nationwide regional platform to take on rivals STAR and Zee. STAR has STAR Vijay, STAR Prabah, STAR Jalsa and Asianet, while Zee has eight regional channels.
|* ETV has 11 regional channels; one Telugu news channel|
|* Rs 2,650-3,180 crore likely ETV valuation|
|* The Network18 Group has two listed entities: Network18 Media and Investments, the holding company, and TV18 Broadcast, which owns the broadcasting assets|
|Network18 Media As of Sept ‘11|
|Market cap (Rs cr)*||578|
|Stand-alone figures||FY11||Sept ‘11|
|Sales (Rs cr)||39.91||16.20|
|Net profit (Rs cr)||-69.13||-28.17|
|TV18 Broadcast As of Sept ‘11|
|Market cap (Rs cr)*||1,191|
|Stand-alone figures||FY11||Sept ‘11|
|Sales (Rs cr)||244.41||143.59|
|Net profit (Rs cr)||-49.25||7.80|
|* as on Dec 13, 2011 Source: BSE website|
Though specifics of the transaction and the deal structuring could not be independently verified, the sources said merger talks were in the final stages and a formal announcement was due shortly. E&Y is believed to be advising on the deal.
Once concluded, this is likely to be one of the biggest consolidation exercises in Indian media space. Recently, Walt Disney received government clearance to buy out the Indian promoters and public shareholders from UTV Software Communication for Rs 1,853 crore.
Eenadu Group MD and Ramoji’s son, C H Kiron, did not respond to emailed queries from Business Standard. Despite several attempts, he could not be contacted. The Network18 spokesperson, too, did not respond to emails.
There is also growing buzz that following the merger, Mukesh Ambani himself or Reliance Industries may pick up a strategic stake in the merged entity. However, this could not be independently verified. The RIL spokesperson did not respond to an email.
ETV Network’s bouquet of infotainment channels in different languages has an exhaustive pan-India presence across states such as Andhra Pradesh and Karnataka in the south to Gujarat and Maharashtra in the west, Bihar, UP, Rajasthan and MP in north and central India, along with Odisha and West Bengal in the east. It also reaches out to the Indian diaspora in the US, providing digital entertainment via ETV Telugu, ETV Bangla and ETV Gujarati entertainment channels.
ETV’s regional channels have had an interesting model of clubbing news and entertainment, the logic being a news wheel at the top of the hour would make viewers stay on for the entertainment to follow.
The Network18 Group is one of largest diversified media conglomerates in India. It has two listed entities: Network18 Media and Investments Ltd — which acts as the holding company of the entire group — and TV18 Broadcast Ltd, which owns the broadcasting assets.
TV18 Broadcast has four national news channels: CNBC-TV18, CNBC Awaaz, IBN7 and CNN-IBN. It also owns 50 per cent in IBN Lokmat, the Marathi news channel, and a similar 50 per cent in Viacom 18, which runs Colors, Nickelodeon, MTV, VH1 and Viacom 18 Motion Pictures. As on September 2011, the promoters own 59.7 per cent of TV18 Broadcast, of which a significant chunk is with Network18.
Other than owning a major chunk of its broadcasting subsidiary, Network18 also owns HomeShop18, different internet properties and Infomedia, and holds strategic stakes in different companies and ventures such as yatra.com.
Network18 also has a distribution JV with Sun Network. The promoters owned 58.5 per cent in Network18 as of September 2011.
Media analysts say the deal structuring will be very interesting. If Network18 Group buys out Eenadu in an all-cash deal, it would stretch further an already over-leveraged balance sheet. The current group debt stands at Rs 1,400 crore. A merger involving share swaps, therefore, makes better sense.
However, another challenge may crop up. The current market cap of both of Raghav Bahl’s listed entities is quite low. While Network18’s market cap is only Rs 578 crore, that of TV18 Broadcast is Rs 1,191 crore. Both, said sources, are much less than the expected valuation of ETV of around Rs 2,650 crore to Rs 3,180 crore (at on Tuesday’s conversion price of Rs 53.2). So in a pure stock transaction, the Network18 promoter stands a chance of getting significantly diluted, unless Network18 group companies are valued at a significant premium to its current market price.
From a business point of view, Viacom 18’s portfolio may seem to have the best synergy with ETV entertainment channels. Sources say a deal with Network18 seems more likely as it as the group holding company.
In any case, a deal with Network18 Group will not trigger the FDI hurdle as happened during the Sony negotiations. During those talks, there were plans of either phasing out the news capsules or hiving off the news channel ETV2 and selling it separately.
Currently, for news TV, there is an FDI cap of 26 per cent.
The transaction is also likely to allow existing investors like Nimesh Kampani of JM Financial to exit. In 2008, Kampani, one of India’s savviest deal makers, came on board of Ushodaya Enterprises, the publisher of flagship Eenadu, the largest selling Telugu newspaper. Ushodaya also doubles up as the holding company of Ramoji Rao’s media empire spanning newspapers and television.
Kampani’s structured transaction (including debt and equity), potentially valued at Rs 2,600 crore for a close to 40 per cent stake, had then helped Ushodaya wriggle out of another deal the Rao family was originally planning with PE bigwig Blackstone Group to sell 26 per cent stake for $275 million (Rs 1,080 crore).
Ushodaya has three divisions, Eenadu Publications, ETV Network and pickles and food company Priya Foods. But, the group also diversified rapidly into film and TV production, distribution, the 1,600-acre Ramoji Film city, financial services, garment manufacturing, and hospitality.
According to an ICRA report, for the nine months ended December 2010, Ushodaya reported a profit after tax of Rs 13.2 crore, with income of Rs 1,062 crore. Of that, TV contributed 37 per cent of total revenues while the publication division contributed the most, with a 40 per cent share. Some media analysts estimate, in FY11, ETV clocked around Rs 525 crore in top line.