MUMBAI: Ending months of negotiations, Subhash Chandra-promoted Zee Entertainment EnterprisesBSE -3.94 % (ZEE) has finally reached an agreement with Anil Ambani-owned Reliance BroadcastBSE 0.00 % Networks (RBN) to acquire the latter for an enterprise value of Rs 1,872 crore.
ET had reported on October 4 that the two parties had revived talks and were working on various options for structuring the deal as the biggest issue for ZEE was a 49% foreign investment cap in the radio sector, whereas there’s no such ceiling in non-news television broadcasting.
“It’s a done deal now,” said a highlyplaced source with direct knowledge of the deal. “Both ZEE and RBN have agreed at Rs 1,872 crore as the final price for the radio and television business.” RBN owns private FM brand 92.7 Big FM and two TV channels — Big Magic (comedy entertainment channel) and Big Ganga (Bhojpuri entertainment).
Sources said the talks had failed somewhere in mid-August after due diligence was carried out. Earlier, Ambani camp was looking to sell the business for Rs 2,300-2,400 crore, while ZEE was adamant at not going above Rs 1,800 crore.
Amitabh Jhunjhunwala, group managing director of the Reliance Group, and Himanshu Mody, headgroup finance & strategy at Chandra’ Essel Group, were working on this deal since beginning of the year.
“The two companies are working on structuring of the deal in order to comply with the current regulatory guidelines,” a source said.
“There were two issues with the deal — first is the 3-year lock-in period under the phase III radio policy, which doesn’t allow radio companies to sell more than 49%, and second is 49% sectoral FDI cap.”
According to sources, ZEE will first pick up 49% stake in RBN with a commitment for the remaining 51%.
Mails sent to Jhunjhunwala and RBN did not elicit any response till press-time. However, a source in the company said, “It is known that Reliance CapitalBSE -4.20 % (the investment arm of the Reliance Group) is looking to exit media and the group’s shifting focus to four pillars of defence, financial services, power and telecom. Media is not going to be the driving force in future anyway.”
Experts believe that media industry is heading towards more consolidation with players eyeing inorganic expansion. Entry of multinational players and liberal foreign investment policy is going to boost it further.
“This is one more step towards consolidation in the sector. More and more consolidation is likely to take place across the sectors as conglomerates are looking at focusing on their key growth areas,” said Sanjeev Krishan, leader Transaction Services at PWC India.
The Reliance Group, under Anil Ambani, had acquired a controlling stake in Adlabs Films, the entertainment and multiplex company promoted by Manmohan Shetty and Vasanji Mamania, in 2005 — a few weeks after the two Ambani brothers decided to separate their businesses.
In 2006, Reliance bought out Shetty’s stake also to take full control of the company and launched its radio business Big FM.
Later, the radio and TV business were demerged into a separate company which was listed on bourses as Reliance MediaWorld Ltd (RMWL) in 2009. Subsequently, the company added television business to its portfolio and changed the name to Reliance Broadcast Networks Ltd (RBNL).
In October 2013, RBNL got board approval to delist. Later in January 2014, the company dissolved its joint venture with the US-based CBS Studios International, and shut down the three channels — Big CBS Prime, Big CBS Love and Big CBS Spark — it had launched in India between 2010 and 2011. It also exited from its joint venture with European firm RTL.
RBN’s radio business had turned profitable a couple of years back, and according to market estimates, its operating profit for FY16 was in the range of Rs 120-140 crore. Currently, Big FM operates in 45 cities with sales partnerships in two more cities. The company had spent Rs 116.9 crore to acquire 14 additional frequencies in the phase III auctions last year, which will take it to 59-station networks by the end of this year.
Interestingly, in an earlier investor call after acquiring Odia channel Sarthak TV, Punit Goenka, MD ZEE, had told analysts that the company is exploring the Bhojpuri market. The company also announced its foray into the radio sector in the Middle East last month with the acquisition of UAE’s first radio station, Hum 106.2 FM.
