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NDTV Restructures To Attract PE & Strategic Investors

26 March, 2009

Media firm NDTV is in the midst of a corporate restructuring which will allow it to raise fresh foreign funds. It has divided the businesses into news and non-news. This is because the news business has restrictions on foreign investment while the entertainment company will be able to raise more foreign fund.

According to the plan, NDTV is demerging its news business into a separate listed entity to be called NDTV Studios. This will house three wholly-owned subsidiaries – NDTV News 24X7 Ltd, NDTV India Plus Ltd and NDTV Business Ltd. These companies will run the three existing news channels- English (NDTV 24X7), Hindi (NDTV India) and business news channel (NDTV Profit).

This is in accordance with the foreign direct investment(FDI) guidelines in the media sector. FDI in an entity engaged in the news and current affairs TV channels is restricted to 26%. There is no such ceiling for FDI in companies engaged in the business of running non-news TV channels.

The non news or entertainment business (NDTV Imagine and NDTV Lifestyle) will remain with the parent firm NDTV. It is this entity which will be free to get more foreign funds. Currently, NDTV has foreign institutional investment to the tune of 23.79%(as of December 31, 2008).

Given the presence of the news business in the firm it faces challenges in raising funds as it cannot look at foreign investors. But this will change once the news business is separated.

Even though the Indian media space has a large presence of foreign media firms such as that owned by media mogul Rupert Murdoch(Star), NBC Universal(CNBC) and Sony, among others, most have a large Indian strategic partner. More recently Disney had built a strong presence by taking management control of UTV Software.

By separating the news business, NDTV could also be potentially making way for a similar partnership with a foreign media giant.

NDTV already has raised some money by selling 26% in NDTV Networks to NBC Universal for $150 million last year. NDTV Networks is a holding company for the firm’s entertainment and lifestyle channels and digital media business. The preliminary agreement includes an option for NBC Universal to increase its stake to up to 50% in two years’ time. This may not have been possible with the news business still under NDTV.

Raising fresh money could also be imperative for the firm as it has been facing huge pressure on bottomline. For the first nine months of 2008-09 the company has made consolidated (adjusted for other income including inflow of Rs 634 crore from NBC) net loss of Rs 334 crore on net sales of Rs 368.9 crore.

The company’s stock price is now lower by more than 80% of its one year highs and the market cap has shrunk to Rs 510 crore odd. Interestingly, the value of the company is now 33% lower than what NBC paid to get a small chunk of one of the businesses within!


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NDTV Restructures To Attract PE & Strategic Investors

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