RIL to Buy Controlling Stake in Network 18 Through Trust
Reliance Industries (RIL) has agreed to provide funding of up to .` 4,000 crore to the Independent Media Trust (IMT) for acquisition of Network-18 Media and Investments, one of the country’s biggest media companies, RIL said in a statement on Thursday. RIL, India’s largest private sector company by revenue and market capitalisation, is the sole beneficiary of IMT and will act as a person in the statutory open offers resulting from the acquisition. “IMT would use the funds to acquire control over Network 18 and TV 18… IMT would be making open offers to public shareholders for acquisition of equity shares in Network 18, TV 18 and Infomedia Press. IMT would be simultaneously making the Public Announcement under Takeover Regulations. RIL would be a Person Acting in Concert to the open offers,” according to a statement issued by RIL. TV18 and Infomedia Press are subsidiary companies of Network 18.
This transition is likely to result in Raghav Bahl, the promoter of the Network18 Group, exiting the media empire he founded two decades ago. Essentially, the transaction announced on Thursday amounts to a conversion of loans given by RIL in 2012 into shares in Network18 group companies. The press release by RIL said the acquisition would results in synergies with its upcoming 4G plans because of the digital, e- commerce and broadcast content of the Network 18 Group. Apparently as a precursor to the impending announcement, in the last 48 hours, Network 18 had seen a spate of top level-resignations. On Wednesday, Network18 Media and Invest- ments’ chief executive officer (CEO) B Sai Kumar had resigned, the company said in a filing to the BSE. This was followed by the resignation of RDS Bawa, the group’s CFO which was also notified to the exchanges a day later on Thursday. Even though no official announcements were made, but multiple sources in the organization confirmed that chief operating officer (COO) Ajay Chacko had also left the media house along with Sai Kumar on May 28. All three were part of the organization since its formative days. Post conversion IMT will end up as the single largest shareholder in both the companies. IMT will directly own 78% in Network 18 and 9% in its subsidiary in TV18, the press statement said. Flagship Network 18 and its broadcasting arm TV18 operate over 30 channels along with its JV partners like Viacom, AETN Networks and subsidiaries. The bouquet includes both news properties like CNN IBN, CNBC-TV18, CNBC Awaaz and general entertainment channels like Colors, MTV, Nick and History TV18. Some of these channels compete with ones owned by Bennett Coleman & Co, the publisher of this newspaper. While the takeover by IMT had been anticipated for a while the resignation of the top 3 Network 18 executives in the last 48 hours had compounded the speculation. Shares of both Network 18 and TV 18 have been moving up. While the former was up 7.12% at .` 45.15/share, the later closed at .` 34.95/share, up 2.4% on Thursday. Currently, promoters held 72.98% stake in Network18 Media and 59.75% in TV18 Broadcast. The changes in control also trigger a mandatory open offer. Par-
RIL said the acquisition would result in synergies with its upcoming 4G plans
ent Network 18 owns 51.2% in TV 18.
“We were expecting this. While this could potentially increase competitive intensity in the TV broadcasting space, one needs to see how much focus and bandwidth of RIL will be available to Network18/TV18. Network18/TV18 will be a good fit to RIL's consumer facing businesses like 4G, retail, IPL team etc. RIL is likely to bring in the best talent available for running the media business given the recent exits,” says Abneesh Roy, associate director, Institutional Equity Research, Edelweiss.
For the financial year ended March 2014, total revenues of Network 18 rose by 6.9% to .` 2834 while TV 18 revenues gained by 16% to .` 1,965 crore over the previous year. Operating profit of both companies have improved following a series of non-core divestments like Newswire18, a news agency, asset sales in Infomedia18 and stake sales in a few businesses like Bookmyshow.com and severe cost-cutting exercises which included layoffs across the group. Network 18 posted a net profit of .` 28 crore for the year ended March 2014 against net losses of .` 198 crore for the year ended March 2013. TV18 posted a net profit of .` 104 crore for 12 months ended March 2014 against a loss of .` 25 crore over corresponding previous year.
Shares of Network 18 have rose 17% to .` 45.15 a share ever since the deal with RIL was announced on January 3rd 2012 against 56% jump in the Sensex in the same period. TV 18 stock has risen only 44%. “The 12-minute advertising cap has hit news channels hard. Unlike general entertainment or sports channels, subscription revenues too have not really kicked in while carriage costs have marginally come down by 10-15% across the industry. It’s a very tough environment,” said a leading media sector banker.