To fund Network18’s acquisition of Eenadu’s channels; deal may eventually give Reliance a major stake in Network18.
Having been in denial mode for the past few days, Reliance Industries Ltd (RIL), controlled by Mukesh Ambani, on Tuesday finally announced its big-bang entry into the media business. RIL has struck a multi-tiered deal that can eventually give it a major equity stake in the Network18 Group, which operates a host of television channels and new media businesses.
RIL will indirectly fund the acquisition by bankrolling two of Network18’s promoter group firms — Network 18 and TV 18 — through optionally convertible bonds. The two promoter group firms will offer rights shares to raise Rs 2,700 crore each to fund the acquisition and reduce debt. Though the companies were tight-lipped on the issue, investment banking sources said RIL was expected to hold an economic interest equivalent to 30 per cent stake in the promoter group companies, with promoter Raghav Bahl continuing to retain management control and owning 51 per cent. “RIL funding would not alter the promoter, management or editorial control of Network18 entities,” said a statement from Network18.
The deal will help RIL secure content from the company for the high-speed 4G data services it plans to start this year. Infotel Broad Band Services, a subsidiary of RIL, has also entered into a pact with TV18 and Network18 for preferential access to all their content for distribution through the 4G broadband network being set up by Infotel. According to the pact, Infotel will have preferential access to the content of all the media and web properties of Network18 and its associates and programming and digital content of all the broadcasting channels of TV18 and its associates on a first right basis as a most preferred customer.
According to a statement released here on Tuesday, Network18 Media & Investment and TV18 Broadcast will offer the rights shares that will fund TV18 Broadcast’s purchase of all of ETV Uttar Pradesh, ETV Madhya Pradesh, ETV Rajasthan, ETV Bihar and ETV Urdu. It will buy 50 per cent of ETV Marathi, ETV Kannada, ETV Bangla, ETV Gujarati and ETV Oriya and 24.5 per cent in ETV Telugu and ETV Telugu News.
Bahl and other founders will invest Rs 1,700 crore in the rights offers that will be funded by Reliance’s trust, Independent Media Trust. Reliance had invested Rs 2,600 crore in Eenadu’s ETV channels.
|* 2008: RIL puts in Rs 2,600 cr for a potential 40% stake in Ushodaya Enterprises - Ramoji Rao’s holdco — via entities owned by JM Financial's Nimesh Kampani|
|* Ushodaya owns Eenadu’s print Publications, ETV Network and Priya Foods|
|* 2011: RIL, Ramoji Rao restructure investment. Ushodaya to own 100% in print and foods business; 51% in Telugu channels; RIL will own 100% in 5 non-Telugu news and 5 non-Telugu GEC channels, and 49% in ETV’s Telugu news and GEC channels.|
|Anatomy of the current deal|
|* STEP 1: 2012 RIL sells 100% in five non-Telugu news channels, 50% in five non-Telugu GECs, 24.5% in two Telugu channels for Rs 2,100 crore to TV18 Broadcast|
|* STEP 2: To finance the acquisition, TV18 will do a rights issue of Rs 2,700 crore at a maximum of Rs 40/share|
|* Network18 will do another rights issue of Rs 2,700 crore at a maximum of Rs 60/share|
|* STEP 3: Network18 Media & Investments — Raghav Bahl’s group holding company — will invest Rs 1,400 crore in the rights issue of TV18|
|* Raghav Bahl — Network 18’s promoter — would require Rs 1,700 crore to subscribe to his shares in the two rights issues|
|* Bahl to be funded by RIL trust through optionally convertible debentures (OCDs)|
|* STEP 4: After the two rights issues, the two listed entities will get Rs 4,000 cr net inflow|
|* Of this, Rs 2,100 cr will be used to acquire RIL’s shares in ETV|
|* With the balance Rs 1,900 crore, Rs 1,430 crore (as of Sept 2011) will be used to retire the group's net debt. The group will be left with Rs 470 cr net cash|
|* RIL, which had paid Rs 2,600 cr for three businesses, earns Rs 2,100 crore by part-selling the television business, thereby making a neat profit|
|* The valuation and financials of ETV|
|* The terms of the OCDs and how much stake RIL will own upon conversion|
|* In case the rights issue is unsubscribed and promoters subscribe to it, promoter shareholding can potentially cross the Sebi threshold of 75%. It is not clear whether they will divest or delist the company|
|* When TV18 will buy the residual stake in ETV’s GEC and Telugu news channels and how it will fund it|
Network18, being the promoter and holder of majority equity in TV18, would be subscribing to about Rs 1,400 crore in the rights issue of TV18. Therefore, once this subscription amount is netted out, the net aggregate rights issue of both Network18 and TV18 will result in fund-raising of about Rs 4,000 crore. Besides subscribing to their full portion, the promoters of Network18 will also reserve the right to subscribe to any unsubscribed public portion of the rights issues.
TV18 will utilise the rights issue proceeds to repay the existing debt, fund the acquisition of ETV channels and working capital needs. At the end of March 2011, Network18 had debt of Rs 1,777.89 crore. Its profit for that year fell 87.27 per cent. TV18’s debt stood at Rs 550.54 crore while its profit fell 17.40 per cent.
Network18 Media, which dropped 72 per cent in 2011, surged 20 per cent to Rs 46.60 on the Bombay Stock Exchange on Tuesday. TV18, which plunged 70 per cent last year, advanced 20 per cent to Rs 33.65, its biggest surge since March 2009. RIL was up 2.37 per cent to end at Rs 723.70.
Network18 Group is one of the largest diversified media conglomerates in India and has two listed entities: Network 18 Media and Investments, which acts as the holding company of the entire group, and TV18 Broadcast, which owns broadcasting assets like CNBC TV18, CNN-IBN, CNBC Awaaz and IBN 7.
This acquistion, in one sweep, will allow Network18 Group to get a nationwide regional platform to take on rivals STAR and Zee. STAR has STAR Vijay, STAR Pravah, STAR Jalsa and Asianet while Zee, on its part, has eight regional channels.
“The regional markets are the next growth area for the media industry,” said Haresh Chawla, Group CEO of Network18 in an analyst conference call. According to a Ficci-KPMG report, regional general entertainment accounts for over 25.06 per cent of the Rs 8,000 crore-plus TV advertising pie with a viewership share of 27.3 per cent.
Ushodaya Enterprises serves as the holding company of Ramoji Rao’s media empire spanning newspapers and television. 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.
Other than owning a major chunk of its broadcasting news space, TV18 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 and VH1 and Viacom 18 Motion Pictures. As of September 2011, the promoters owned 59.7 per cent of TV18 Broadcast, of which a significant chunk was with Network18.
Network 18 also owns Home Shop18, different internet properties, Infomedia and strategic stakes in different companies and ventures like yatra.com. Network18 also has a distribution JV with Sun Network. The promoters owned 58.5 per cent in Network18 as of September 2011.