Rediff.com India’s board of directors has approved the acquisition of Vubites India, a Mumbai-headquartered television advertising firm promoted by Ajit Balakrishnan, who is Rediff’s founder and chairman. The acquisition of a company promoted by the CEO has raised questions on the standards of corporate governance as it's a related party transaction.
However, Rediff has refuted any violation of governance norms, according to media reports. VCCircle could not contact Rediff for their comments on this deal. Medianama reported the story earlier.
Vubites was established in February 2007 but commenced operations in July 2010, and has accumulated loans of $2.79 million as of October 2010. Balakrishnan has accepted to investors that Vubites India is ‘personally financed’ by him.
Rediff informed the SEC of the proposed acquisition on October 28, 2010 and proposes to pay $3.38 million for Vubites India. Of the $3.38 million, $3.08 million is being extended as a loan so Vubites can repay its existing loans. Of the balance, $0.29 million will be used to buy back employee stock options and the rest to promoters.
However, it is pertinent to note that Rediff has refused to divulge more details of Vubites India - its business model, coverage and clientele list.
The company has elaborated on the reasoning behind the acquisition, claiming the buy will provide Rediff a hedge in the event that broadband sector does not grow and is being called a risk diversification strategy.
Ashok Lalla, President - Digital, Euro RSCG said, 'The acquisition would add a share of the TV ad pie to its portfolio in the short term, and in the long term, video is the future. Balakrishnan is a maverick entrepreneur and may have seen an opportunity before it becomes mainstream.''
“The company has been hunting for a new growth platform which is a little less dependent on the growth of broadband users in India,” said Balakrishnan, in a conference call held post the company’s second quarter results.
“Our board recently approved plans to enter this market through a small strategic acquisition. We will provide further details shortly as we will be seeking shareholder approval given that the acquisition is of a company which I found it and personally financed. Again, while it is a relatively small acquisition, we wanted to ensure our shareholders understand the benefits this deals bring to our company both near and longterm. This is a reason we are seeking shareholders’ approval,” he said.
Vubites has a suite of three web-based tools – VuCreator to create TV commercials, a monitoring tool called VuPlanner to edit and plan ad campaigns according to geographical and socioeconomic profile of users as well as budget and, third, a secure delivery system to display these ads at the city and sub-city level. Competitors of Vubites include SureWaves and Amagi, who target the Spot TV opportunity – regional, city-specific advertising. When asked if the acquisition would change things, Bhaskar Subramanian, founder of Amagi, said, “This is an internal decision between the company and Balakrishnan, we have no locus standi on the news. Nothing is going to change, it will not affect us.”
Rediff.com India is a Nasdaq listed firm with a cash balance of $42.8 million as of September 30, 2010.
Rediff has done several strategic deals in the past, but most have been in the form minority investments rather than complete buyouts. Rediff acquired India Abroad, a weekly for NRIs in USA in 2000. It also picked up a stake in 2000 at Value Communications Corporation. It picked up a stake in the Indian financial portal, Apnaloan.com in 2001, which has since become a part of Getahead.
It has 26% stake in Tachyon Technologies in 2006, a minority stake in Eterno Infotech in November 2008 and in November 2009, a small stake in Bangalore based location-enabling company Imere Technologies.