Anil Ambani’s Reliance CapitalBSE 0.64 % has initiated talks with likely Chinese strategic buyers such as Dalian Wanda Group, Tencent, or even Alibaba to sell its entire 35.1% stake in multiple Oscar-winning media services company Prime FocusBSE 2.13 %, said sources aware of the development.
Sources said that Standard Chartered Private Equity, which came on board in 2012 and subsequently increased its stake two years ago, may also join Reliance and monetize its 21.9% investment, either in part or in full, to maximise the value of its investments.
A stake sale by Reliance will trigger an open offer for the acquisition of another 26% of shareholding and that could lead to a change in management control at the company that’s the world’s biggest integrated media services firm specializing in visual effects, animation and post-production for films and television.
The company’s current market capitalization is Rs 2,667.49 crore, based on which the value of the Reliance stake is Rs 936.28 crore. But a controlling stake involving a 30-40% premium for management control could easily fetch Rs 1976 crore to Rs 2128 crore, at a valuation of Rs 3467 crore to Rs 3734 crore.
“Both are financial investors and if they exit together, it’s straightaway a 57% block available to a new strategic investor. Naturally, the control premium will then be a lot higher. Reliance is exiting in full and that move alone can potentially see a new investor corner up to 61% of the company if the open offer is fully subscribed to,” an official aware of the developments said on the condition of anonymity.
Namit Malhotra, the company’s founder, executive chairman, and Global CEO, and his family also own 35% of the company, while the public shareholders control the rest. Malhotra is likely to continue running the management even after the sale.
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In 2014, the Reliance Group took one of its media companies RelianceMediaWorks (RMW) private, and merged its film services operations with the listed Prime Focus, taking a stake in the combined entity. This was done after Anil Ambani had separated the film exhibition business from RMW, moving the assets to Big Cinemas that also subsequently was sold to Carnival Cinemas in 2015. RMW was earlier known as Adlabs Ltd and was itself acquired by Ambani from Manmohan Shetty.
A Reliance Group and Standard Chartered PE spokesperson declined to comment. E-mails to Wanda, Tencent or Alibaba did not receive a response until the publication of this report.
“I find it very hard to believe that these investors are even thinking of an exit at this time. In case they would have wanted to, first they would come and discuss with the management. And nothing of that sort has happened yet,” said Vikas Rathee, Group CFO, Prime Focus.
The promoters have the first right of refusal if existing shareholders exit and some believe they may exercise that by roping in a new financial partner.
The Prime Focus stock on Tuesday ended at Rs 89.25/share up 6.44% from the previous closing.
“Timing wise, Standard Chartered PE has been involved with the company for a very long time, and it might be looking at an exit. Especially with the integration with Double Negative, the company is in much better shape, so it is an expected move. Also, it is known that the Anil Ambani-led Reliance Group is exiting all the non-core businesses to focus on defence and other businesses. So it is not a surprising move,” said Girish Menon, director-media, and entertainment at KPMG in India.
CHINESE CONQUEST
With a $10-billion box office, the Chinese movie and content industry is poised to become the largest in the world, surpassing both US and India. Players such as Wanda have emerged as the world’s largest cinema theatre chain operator. Last year, after a setback to his plans to invest in Paramount Pictures, Wanda chairman Wang Jianlin announced a film production tie-up with Sony Pictures. The $40-billion conglomerate Wanda has been trying to build a diversified entertainment empire similar to Disney.
Similarly, in 2016, Jack Ma’s Alibaba Pictures joined forces with Steven Spielberg’s Amblin Pictures to produce, distribute and market films and TV content globally and in China, a first of its kind initiative. Ambani, too, is a stakeholder in Amblin.
Hong Kong-listed Alibaba Pictures operates across film investment and financing, content sourcing and production, promotion and distribution, as well as cinema services. It also has partnerships with other Hollywood studios such as Paramount Pictures and Skydance Media on a project-to-project basis.
Despite being closely involved with top-billed global franchises such as Batman, Transformers, and Harry Potter and winning 3 Oscars for special effects for Hollywood blockbusters Inception, Interstellar and Ex-Machina, the story of Prime Focus remains relatively unknown beyond the movie fraternity.
Prime Focus, which started in 1997 in a Mumbai garage by its 6 founders Merzin Tavaria, Prakash Kurup, Huzefa Lokhandwala, Ramki Sankaranarayanan, Ganesh Sankaran and Namit Malhotra, currently employs over 7,000 professionals in 15 cities across 4 continents and 6 time zones, offering the full suite of end-to-end creative services to the Media and Entertainment industry. About 80% of its revenue come from its international operations. The company registered sales of Rs 1500 crore in the first 9 months of FY17, ending December. The company has Rs 1273 crore of debt as on June 2016. It is expected to close FY17 with a Rs 380 crore EBITDA, which would likely increase to Rs 500 crore in FY18.
