Billion dollar media marriage

Raghav Bahl has just bought a combo-meal. In a single stroke, that is actually a combination of several smaller moves, he has got a huge foothold in the Telegu market, become a debt-free company and now has Mukesh Ambani as a strategic investor.

TV18 Broadcast has now snapped up Ramoji Rao-owned Eenadu TV. The Board has approved an outlay of Rs 2,100 crore for this acquisition which will give TV18 Broadcast a quick presence across all important regional markets of India, barring Tamil Nadu and Kerala. The deal also gives TV18 an option to buy the balance 50 per cent interest in ETV non-Telugu GEC channels and additional 24.50 per cent of ETV Telugu channels. Sources within the industry in the know of the deal say that Network18 Group is buying out the entire ETV network.
 
Network18 has been able to strike this deal thanks to Mukesh Ambani who will be divesting his stake in Eenadu TV to TV18 Broadcast. RIL, through investments of about Rs 2,600 crore, by its group companies, currently holds 100 per cent interest in news channels, 50 per cent interest in entertainment channels and 24.50 per cent interest in Telugu channels.

RIL will bring in the cash through a trust called Independent Media Trust - thus, possibly, preserving the management, operational and editorial independence of TV18. The promoters of TV18 and Network 18 will issue optionally convertible debentures to this Trust. The promoters will then bring this money into TV18 and Network 18 through a rights issue.

Media analysts say that this deal ensures that TV18 does not have to start in this space from scratch. This acquisition will also help TV18 to effectively compete with its three big rivals namely - Star, Sun and Zee - across various markets as ETV's portfolio is fairly good in terms of ratings.

Gaurav Dua, head of research at Sharekhan says: "It's a win-win deal for TV18 Broadcast as it will gain in terms of getting a strong strategic partner in Reliance Industries, it will become debt free. Thirdly, it will become a larger platform with access to a larger regional play and lastly, it will get access to the RIL 4G platform."

Network18 and TV18 founder-promoter Raghav Bahl needs to reduce debt that remains high. The acquisition of ETV will help TV18 to increase its subscription revenues. As for Reliance Industries, Dua opines they have found a new avenue to deploy their free cash and also an entry into a new business space: entertainment and news. RIL has $12 billion in cash on their books.
 
The news of Eenadu buy out has been on for almost a year. Prior to Network18 getting into the picture, Sony Entertaiment Television (SET) India was in talks to buy out Eenadu TV. But sources within the industry indicate that Sony pulled out of the deal a while ago as the global major found the valuation too high. Sony was involved in an all-cash deal but did not agree on the valuation of over Rs 2,000 crore for the regional entertainment channels

Farokh Balsara, Media and Entertainment industry leader for Euro, ME, India and Africa Ernst & Young says: "We are seeing the consolidation process in the broadcasting space continuing. We see the emergence of large broadcast networks as it happened in the US. As we go along we will have four or five large networks that have national play". "This is also good for the advertisers as it will give them a larger platform to advertise and across languages," he adds. Ernst & Young has been the advisors on the deal.

It is understood that ETV's annual revenue is around Rs 500 crore and its valuation is over Rs 2,000 crore. According to some media experts the valuation is four times the revenue of ETV and seems too high. TV18 Broadcast has a market cap of Rs 1,220 crore.

As one would remember, it was just few months ago when Network 18 Group entered into a tie-up with Sun Network for distribution. Now the deal with ETV could possibly spoil Network18's joint venture with Sun. But, the positive side to this is that if all goes well, then just as the Zee-Star distribution deal, the Sun18 bouquet will also become formidable.