Videocon d2h inks $375M deal with US blank cheque co; on track for NASDAQ listing

Videocon d2h Ltd, which runs the direct to home (DTH) business for Videocon Group, has inked a deal to sell over 33.5 per cent stake to an American 'blank cheque' firm started by former MGM chief, for up to $375 million (Rs 2,378 crore). This effectively means the firm has opted out of a proposed initial public offer (IPO) in India.

In a regulatory filing with SEC, American blank cheque firm Silver Eagle Acquisition Corp said it has entered into a transaction agreement on December 31, 2014 with Videocon d2h, which will result in the first US-listed Indian pay-TV operator. In exchange for cash, Silver Eagle will receive new equity shares of Videocon d2h initially valued at $303.7 million or more representing at least 33.5 per cent stake in the Indian firm.

The shares issued by Videocon d2h will be represented by American Depositary Shares (ADSs) which will be distributed directly to Silver Eagle's stockholders.

The actual amount of cash to be contributed by Silver Eagle and the number of Videocon d2h shares represented by ADSs to be issued by Videocon d2h will depend on the number of public shares which Silver Eagle's stockholders elect to redeem in connection with the transaction. The ADSs issued to and initial percentage holding of its stockholders, including the Silver Eagle's sponsor, is expected to be in the range of 33.5per cent to 38.6 per cent, depending on the number of redemptions by Silver Eagle's public stockholders and based on certain agreed-upon forfeitures of Silver Eagle shares held by its sponsor. The ADSs will be distributed pro rata to Silver Eagle's stockholders.

Videocon promoters Dhoot family will also be entitled to be issued additional equity shares of Videocon d2h representing, in aggregate, 3.88 per cent of the post-closing issued share capital of the firm, subject to the achievement of certain trading price targets over a three-year period after closing.

Silver Eagle is an OTC exchange board listed blank cheque or special purpose acquisition company (SPAC) co-founded by former chief of Hollywood studio MGM Harry Sloan and media sector veteran Jeff Sagansky.

Sloan stated: “We created Silver Eagle for the purpose of finding a fast-growing media opportunity which is taking full advantage of the digital revolution. With almost 10 million digital subscribers, this well-managed company has passed the inflection point to become a leader in India’s explosive television growth.”

Sagansky, said: "Videocon's DTH business is in what we believe to be the fastest growing segment of the media industry in India in part because of the government's ongoing mandatory digitisation plan in addition to millions of Indian homes subscribing to pay TV for the first time. Together there is an expected 33 million new Pay-TV subscribers over the next four years and we are pleased to become part of Videocon d2h’s dynamic growth story.”

Sagansky has been a long time investor and executive in the media and entertainment businesses. He serves as chairman of Hemisphere Film Capital, a film and TV finance company behind names such as The Smurfs, The Adventures of Tintin, Men in Black 3 and World War Z. He is also co-founder of digital production company Electric Farm Entertainment and is a lead investor in numerous other companies including Content Media Corporation, the UK based distribution company, Trifecta, the syndication and media sales company, Stargreetz, the web based personalised messaging company and Sprylogics, the chat based mobile search company.

Sloan and Sagansky are expected to join the board of directors of Videocon d2h at closing.

Venugopal Dhoot, chairman of the Videocon Group, said: “Our DTH service already offers the highest number of channels in each of our packages and we were the first company to launch HD channels in India. We anticipate that the transaction with Silver Eagle will not only give us additional capital to continue development of our services, but also unparalleled expertise and experience. We look forward to working closely with Harry and Jeff on expanding our market share and services.”

Upon consummation of the transaction and distribution of Videocon d2h ADS' to stockholders of Silver Eagle, Videocon d2h will be a publicly held corporation. Videocon d2h intends to apply to list the ADSs on the NASDAQ stock market.

It would join the likes of MakeMyTrip and ExlService.

The firm had confidentially submitted a draft registration statement under the Jumpstart Our Business Startups Act of 2012, or JOBS Act. The JOBS Act is to encourage funding of small businesses by easing various securities regulations. Although Videocon d2h is not a small firm by Indian definition, it qualifies to apply as its annual revenues are less than $1 billion, the cut off point for JOBS Act.

In the past some overseas incorporated but Indian firms such as Amira Nature Foods and Eros International have listed in the US through the JOBS Act.

Videocon d2h

Videocon d2h is one of the fastest growing DTH broadcast operators in India as measured by new subscribers. It distributes over 500 digital television channels and other video and audio services to subscribers via direct satellite feeds. Videocon d2h commenced operations in July 2009 and has since grown to a gross subscriber base of 11.8 million and a market share of 16.5 per cent in the Indian DTH market as of September 30, 2014.

Based in Mumbai, Videocon d2h is part of business conglomerate Videocon Group which has diversified interests in consumer electronics, oil and gas, power, retail and insurance, among others.

The firm had recently refiled its draft red herring prospectus (DRHP) to raise as much as Rs 700 crore ($115 million) through its maiden public issue in India.

This is the second time the firm had proposed to go public. It had previously filed documents in December 2012 and had received a go ahead from securities market regulator SEBI but did not go ahead with the public float. At that time too it had planned to raise up to Rs 700 crore.

The latest announcement in effect means it has decided to skip the domestic public float.

The firm is one of the half a dozen national service providers besides Dish TV, Tata Sky, Sun DTH and Reliance Big TV. Only Dish TV is a listed peer.

Its total income for the three months ended June 30, 2014 and the financial year ended March 31, 2014 was Rs 537.7 crore and Rs 1,760.8 crore, respectively. In the same period it generated net loss of Rs 78.15 crore and Rs 469.3 crore, respectively.

Silver Eagle Acquisition Corp

Silver Eagle is a blank cheque firm, which is a  special category of companies created through a public listing without any set operations (hence blank cheque). Blank cheque firms raise public funding with the purpose of acquiring and reverse merging one or more firms in an identified sector and or geography. After such an acquisition through a reverse merger, they become an operating firm.

Silver Eagle, in particular, was incorporated in April 2013 and raised around $325million in the process. It was previously listed on the NASDAQ itself. Last month, it was delisted from NASDAQ due to its non-compliance with listing rules which requires firms to have at least 300 public holders for continued listing on the NASDAQ.

It's common stock, warrants and units now trade on the OTCQB market. The OTCQB market is generally limited to companies that are subject to and current in Securities and Exchange Commission reporting obligations.

In said on Monday that in connection with the proposed transaction with Videocon d2h, it will seek the approval of its public warrant holders to amend the agreement governing its warrants so that, upon the closing, each of its outstanding public warrants, which entitle the holder thereof to purchase one-half of one share of its common stock, will be exchanged for cash for $1 per warrant. Approval of the amendment requires the affirmative vote of holders of 65 per cent of its public warrants. However, approval of the amendment to the warrant agreement is not a condition to the closing of the transaction with Videocon.

Global Eagle

Silver Eagle is a successor to a previous NASDAQ-listed blank cheque firm by Sloan and Sagansky, Global Eagle Acquisition Corp. This firm, founded in 2011, had struck a deal a year later to buy Row 44, Inc. (Row 44) and majority stake in Frankfurt-listed Advanced Inflight Alliance AG (AIA) to create the largest entertainment and connectivity platform for the worldwide airline industry.

Post the twin acquisition, Global Eagle Acquisition Corp was rechristened as Global Eagle Entertainment Inc as trades separately.

AIA, now fully owned by Global Eagle Entertainment, is the leading supplier of games, movies, general entertainment and applications to the airline industry. Row 44 is a leading satellite-based broadband service provider to the global airline industry.

In 2013, Global Eagle Entertainment acquired almost all the assets of Post Modern Edit, LLC and related entities besides a stock acquisition of IFES. 

(Edited by Joby Puthuparampil Johnson)

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