Bodhi Tree-Viacom18 deal: Why the new deal points towards Reliance's aggressive push in broadcasting business

The restructuring of the deal between Bodhi Tree Systems, a joint venture between James Murdoch, the founder of Lupa Systems, and Uday Shankar, the former chairman of Star and Disney India, to invest money in Viacom18 has been most interesting.

The original transaction was meant to have Bodhi Tree Systems, an investment platform backed by Qatar Investment Authority, a sovereign wealth fund, pick up a 40 per cent stake in Viacom18 for Rs 13,500 crore. Above and beyond this, Reliance, via a group entity, was supposed to invest Rs 1,645 crore, thereby taking the total infusion into Viacom18 to Rs 15,145 crore.

Announced last April, this original deal was expected to close in six months. The rest of the shareholding (the remaining 60 per cent) was supposed to have been split between Reliance at around 50 per cent, with Paramount Global (formerly known as ViacomCBS) taking an approximate stake of 10 per cent.

The important point is that this was made public before the bidding for the Indian Premier League (IPL) rights. In mid-June last year, Jio picked up the digital rights for this marquee tournament. The outgo was Rs 23,758 crore for a five-year period; the television rights went to Disney Star who paid Rs 23,575 crore.

Now, a year later, after the original deal between Bodhi Tree and Viacom18 was announced, and it has been reworked. The total fund infusion will remain the same at Rs 15,145 crore but there is a big difference: Reliance will now put in Rs 10,839 crore, while Bodhi Tree’s contribution has been cut down, now pegged at Rs 4,306 crore. In terms of shareholding on a fully diluted basis, Reliance will hold 60.37 per cent (TV18 will have another 13.54 per cent), while Bodhi Tree’s stake will be at 13.08 per cent instead of the earlier 40; Paramount will hold the other 13.01 per cent.

While the reasons behind Bodhi Tree trimming its investment could be many, the obvious one seems to be the cooling off of valuations in the tech space globally. However, bankers think otherwise. According to Utkarsh Sinha, MD of Bexley Advisors, a boutique investment bank focused on the tech and media sectors in India, Jio has grown from strength to strength in the Indian OTT space, particularly with the acquisition of IPL rights. “Their free-acquisition model has borne a lot of fruit in the past with 4G, and IPL is likely to be a cornerstone of their 5G acquisition play as well. If they expect similar success in that play, it is quite possible that they found the prior dilution levels too dear given their current projections,” he noted.

On the specific issue of valuations taking a hit in the sector, Sinha admits that one can’t dispel that notion. “Arguably, Jio is one of the few players that is largely vaccinated against this downturn by its own deep pockets. One must, therefore, explore alternate scenarios,” he explained.

Meanwhile, Vivek Menon, Managing Partner at NV Capital, a media and entertainment (M&E) credit fund, believes there has been a change of plan at Reliance’s end with the intention of keeping a bigger pie of the entire Viacom18 business.

“Clearly, they see a big potential and that is obvious in the recent announcement of Jio Cinema unveiling a slate of 100 movies and web shows to be released over the next 18-24 months,” he said. According to Menon, this aggressive plan in the content space means Jio Cinema wants to up the game “and provide the necessary fuel to be in the driver’s seat for Viacom18.” The strategy of getting in investors but not letting go off its majority stake has, in the past, played out in telecommunications and retail as well.

Most recently, Comcast has picked up a stake in Bodhi Tree for $200 million (Rs 1,600 crore). “Comcast is one of the largest entertainment companies in the US along with the likes of Disney, Discovery and Warner. Given how things are playing out in India, Comcast’s move is very interesting,” Menon explained. On the face of it, Jio’s ability to wait it out is the big factor. “They have the deep pockets needed to fund a long-term and sustained customer acquisition play, which few companies can execute without external capital,” summed up Sinha.

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