Raghav Bahl-led Network18 Group is acquiring a string of regional language news besides general entertainment TV channels under Eenadu Group owned by Reliance Industries Ltd(RIL) for upto Rs 2,100 crore($395 million), the company said on Tuesday.
RIL, that had quietly picked a large stake in the Eenadu Group and had it kept that under wraps till now, will indirectly fund this acquisition by bankrolling the promoter group firms through equity convertible debt. In the future this will give it a significant equity stake in Network18 Group, and thereby a large exposure to bustling media sector in India.
Both Network18 and TV18 scrip shot up almost 20 per cent each to hit their respective upper circuit limits for the day on Tuesday. Although, the deal would not immediately call for an open offer for the listed firms, when RIL chooses to convert the debt into equity in the future, it may end up triggering a mandatory open offer.
Either ways, this will give RIL a huge exposure in the media business spanning areas such as television, Internet, filmed entertainment, e-commerce, magazines, mobile content and allied businesses including prime properties such as CNBC-TV18, CNN-IBN, MTV, Colors and moneycontrol.com among others. It will also strengthen the group’s new media business with a solid content base for the launch of broadband business housed under Infotel.
Ernst & Young acted as advisors for financial and tax due diligence and valuation of the assets. The legal due diligence was carried out by Khaitan & Co.
Under the agreement, the board of directors of TV18 Broadcast Limited (TV18) on Tuesday approved the acquisition of 100 per cent stake in regional news channels in Hindi namely ETV Uttar Pradesh, ETV Madhya Pradesh, ETV Rajasthan and ETV Bihar and ETV Urdu channel besides 50 per cent stake in general entertainment channels ETV Marathi, ETV Kannada, ETV Bangla, ETV Gujarati and ETV Oriya and 24.50 per cent in ETV Telugu and ETV Telugu News.
TV18 will have board and management control of ETV News Channels and ETV non Telugu entertainment channels. The Board has approved an outlay of up to Rs 2,100 crore for this acquisition.
Additionally, TV18 has an option to buy the balance 50 per cent interest in ETV non Telugu GEC Channels and additional 24.50 per cent interest of ETV Telugu Channels, currently held by RIL Group.
To fund the acquisition, both Network 18 and TV18 in separate board meetings today approved rights issue to the tune of upto Rs 2,700 crore each. 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 a fund raising of about Rs 4,000 crore.
The contribution of the current promoter entities of Network18 in these twin issues will be about Rs 1,700 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.
It is here that RIL would come in to indirectly fund the transaction. Raghav Bahl, the promoter of Network18 and TV18, has disclosed that promoter companies have entered into an arrangement with Independent Media Trust, a trust set up for the benefit of RIL, to secure the funding required for this purpose.
Bulk of the promoters contribution to the rights issue would come from an investment trust of RIL that will subscribe to optionally convertible debentures of the promoter entities of the Network18 Group.
So even as RIL will have rights to pick a major stake in Network18 group firms in the future, Raghav Bahl as founder and promoter, shall continue to retain management and 51 per cent control over Network18 and 51 per cent control over TV18 through Network18 in the near future.
TV18 will utilise the money to repay the existing debt, fund the acquisition of ETV Channels and fund working capital needs. Network18 will utilise the funds raised to repay the existing debt and subscribe to the rights issue of TV18.
In a statement Bahl, founder, editor & managing director of Network18, said: “By inducting such a significant amount of equity, our balance sheets will become among the strongest in the industry.”
RIL’s Eenadu Investments:
RIL, through investments of about Rs 2600 crore, by its group companies, currently holds interest in various ETV Channels being operated and managed by Eenadu Group including 100 per cent economic interest in the regional news channels, 100 per cent economic interest in ETV non Telugu entertainment channels besides 49 per cent economic interest in ETV Telugu Channels.
It is not clear exactly when RIL made these investments.
Earlier, Blackstone had struck a deal almost five years ago to acquire a large stake in Eenadu’s Hyderabad-based parent firm Ushodaya Enterprises, but the deal had come unstuck as it faced political opposition from other media sector investors in Andhra Pradesh.
While Blackstone initially cut the size of the deal, it later completely pulled out of the transaction after facing delays in securing a green signal from government authorities to complete the transaction.
Thereafter, Nimesh Kampani of JM Financial Group had reportedly acquired a stake in Eenadu. Given the latest announcements, RIL would have later acquired the economic interest in the media group from Kampani.
Incidentally, younger brother Anil Ambani has a large presence in the media business and as per the now defunct non-compete agreement, the two brothers were not allowed to invest in sectors in which the either brother has a business presence. This non compete-clause was scrapped in May 2010 so the investments in Eenadu could have potentially happened thereafter.
Notably, Blackstone’s India chief Akhil Gupta was previously with Reliance Group and was a senior member of the team handling the group’s telecom venture(before the group was spliced up between the two Ambani brothers).
What Does It Mean For Network18 Group:
By acquiring this strategic control over several ETV Channels, TV18 will have a bouquet of leading television channels.
ETV is one of the leading TV Networks in South India and it is also among the top five broadcast networks in the country. ETV Channels were one of the first entrants in the regional markets and have a considerable viewership base.
On a combined basis, TV18 will be offering a mix of national and regional channels catering to diverse genres like Hindi and regional entertainment; general news in English, Hindi and regional languages; business news in Hindi, English and regional languages; music; kids; devotional and infotainment channels.
Including the soon-to-be-launched services/variants, this combined bouquet of over 25 channels will make Network18 a formidable player in the media & entertainment business.
RIL Biz Diversifications:
For India’s most valued company the latest transaction comes as yet another business diversification from its core energy business. The firm that earlier ventured into retail sector and over the past two years has gone pretty aggressive with entry into hospitality(strategic interest in Oberoi Hotels promoter EIH Ltd), financial services(JV with DE Shaw) and broadband (acquired 95 per cent in Infotel for Rs 4,201 crore).
Even as oil & gas sector remains at the core of the company (and its cash cow in the near future), with the latest business diversifications RIL is slowly transforming itself into a conglomerate with diverse businesses.
Besides marking a big bang entry into the media business, the latest deal also brings synergies for RIL’s foray into new media sector.
Infotel Broad Band Services Limited (Infotel), a subsidiary of RIL, has also entered into a Memorandum of Understanding with TV18 and Network18 for preferential access to all their content for distribution through the 4G broadband network being set up by Infotel. As per the MoU, Infotel will have preferential access to the content of all the media and web properties of Network 18 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.
RIL expects digital content from entertainment, news, sports, music, weather, education and other genres will be a key driver to increase consumption of broadband.