Dish TV, Videocon d2h merger creates leader

Direct-to-hometelevisionoperator Videocon d2h will merge with Dish TV, creating India’s largest media company by sales. Dish TV is the market leader in the DTH space, while Videocon is the third largest by subscribers. Their combined sales in FY16 were ~5,920 crore, more than Zee Entertainment, which had sales of ~5,850 crore. Both Zee and Dish are part of Subhash Chandra’s Essel Group.

The merged entity will be named Dish TV Videocon Ltd. It will operate three brands — Dish TV, Zing and Videocon d2h. The combined subscriber base would be 27.6 million, as of end-September.

Dish TV chairman and managing director Jawahar Goel indicated a multiple brand strategy would be followed, as each is a string one and this would help cater to a diverse customer base at various price points. The merged entity will have a 16 per cent share of the 145-million subscriber pay-TV market.

From a current market share of 25 per cent for Dish TV, the new entity will have a market share of 45 per cent, nearly double the size of the second largest DTH operator, Tata Sky, with a share of 24.2 per cent. However, despite the size, Macquarie analysts do not think that there will be issues with the Competition Commission given that India has seven DTH players, as compared to two to four in most countries.

As part of the deal, Vd2h shareholders will get 2.021 new shares in the merged entity for every share in Vd2h. This will translate to 55 per cent ownership for current Dish TV shareholders in the merged entity; Vd2h owners will get 45 per cent. At the market cap of Nasdaqlisted Vd2h, there is a 34 per cent premium paid to the company for the merger, say analysts. The Dish management, however, said the valuation was fair.

The Dish TV management indicated that it will try to keep margins (combined FY16 margin at 31 per cent) at about 30 per cent and improve after the deal gaining on cost and scale efficiencies. The merged entity will have a combined net debt of ~2,161 crore and net debt to operating profit of 1.2 times, which according to analysts is manageable. Analysts at Macquarie in a report indicated that the merged entity would have bargaining power in terms of content deals, taking price hikes and lowering subsidy burden. They expect margin benefit from synergies to the tune of 340-450 basis points.