News Corp subsidiary Star India has revived plans to sell its 26% stake in television content services provider Balaji Telefilms Ltd. An Anil Dhirubhai Ambani Group (ADAG) arm, either Reliance Big Entertainment or Reliance Mediaworks, may be the front-runner to acquire the stake, said multiple sources familiar with the development.
Star resumed deal talks after smoking peace pipe with Ekta Kapoor-led Balaji Telefilms, a rapprochement that was unveiled to the media in recent weeks. After a two year hiatus, Balaji Telefims will once again be working on primetime soaps for Star Plus, the flagship general entertainment channel of the Rupert Murdoch owned media conglomerate in India.
One source, who did not wish to be named, said Star has been quietly working on its stake sale after salvaging ties with Balaji. Star’s exit has been hanging fire despite its communication to offload the stake nearly two years ago. The stake sale, possibly with a unit of ADAG, could be announced shortly.
Mails sent to Star TV spokesperson did not elicit any response, while Rajesh Sawhney, president, Reliance Big Entertainment, did not respond to queries. Queries sent to Balaji Telefilms did not elicit response at the time of posting this report.
On Monday, the stock ran up 19.23% to close at Rs 57.65 on BSE even as the Sensex climbed up 184 points to end the day at 17249.73. The company’s current market capitalisation is pegged at Rs 370 crore which is a far cry from the highs of 2007-08.
The deal that is currently being negotiated comes on the back of possible commitments that Star would roll-out more work for Balaji Telefims across its networks – both Hindi as well as regional, sources added. It could happen at slight premium to quoted price after factoring in the cash sitting – estimated at around Rs 255 crore – on the company’s books as well.
But the firm’s revenue has nosedived in the past two years dropping to Rs 164 crore in FY10 after peaking at Rs 329 crore in FY08. “With revenue and profitability no longer strong, there’s no case for a premium on the stock price. And in our view a negotiated deal with Star would have factored in the production work likely to flow from their side,” said an analyst with a Mumbai-based brokerage firm.
ADAG operates in the media and entertainment industry through two main entities – Reliance Mediaworks, which is an entertainment services firm focused on multiplexes, and Reliance Big Entertainment, which deals in content production across media platforms.
If the transaction goes through, it would be followed by a mandatory open offer giving the acquirer a shot at another 20% stake in the company. However, sources did not rule out the possibility of the acquirer and the original promoter family making a joint open offer even though this news could not be verified independently. The promoter group holds 40.24% stake in the company currently.
In 2008, Star had snapped exclusive production tie-up with Balaji Telefilms and even walked out of a joint venture to explore setting up regional GEC channels. At the time, Star offered its stake to the Kapoor family at Rs 190 per share in accordance with the latter’s right of first refusal. The stock was trading at Rs 160 levels at the time. The family had 240 days to clinch a transaction after which Star was free to sell the stake to an outside investor but not an outright rival of Balaji Telefilms.
In the interim, the relationship between the Kapoor family and Star India deteriorated with the former hauling up Star before the courts for pulling some of its soaps off air ahead of the contract expiry.
Star had acquired the stake in Balaji through affiliate Asian Broadcasting FZ-LLC for Rs 123 crore back in 2004. Balaji Telefilms and Ekta Kapoor then churned out a series of blockbuster soaps as Star Plus climbed its way to the top of the GEC charts. The recently announced television series ‘Tere Liye’, to be rolled out on Star Plus, will a big test for for Balaji Telefilms as most of its productions get bench marked with popular serials of yesteryear’s such as Kyunki Saas Bhi Kabhi Bahu Thi and Kahaani Ghar Ghar Ki.