On September 2016, the Board of Directors of Balaji Telefilms Limited (BTL) approved amalgamation of Bolt Media Limited (BOML) with BTL and demerger of the films production undertaking of Balaji Motions Pictures Limited (BMPL) with BTL.

Industry Description

Group has undertaken restructuring to separate its Film Production and Film Distribution Businesses.
Indian media and entertainment (M&E) industry is expected to grow at a CAGR of 14.3% to touch Rs.2.26 trillion by 2020. The last two-three years has seen major consolidation in the media space. PE investors also have evinced interest in M&E space, picking up stakes in companies operating in that segment. The emergence of digital and the need for compelling content seems to be driving up interest among investors. Also by relaxing the entry barriers for foreign investments in certain key areas of this sector, the Government of India has provided the sector the much-needed impetus to growth.

The scheme will be effective from April 01, 2016.

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Company Description:

BTL: It is a leading integrated media conglomerate with leadership in television content industry. The company is working towards the launch of digital platform “ALT Balaji” in FY2017, Under ALT Digital Media Entertainment Limited.

BMPL: It is public limited company engaged in the business of production & distribution of motion pictures and films. Post demerger, the company can focus on film distribution its core business. The company has appointed Mr. Amar Gill as the CEO

BOML: It is a public limited company engaged in the business of production of digital content, non-fiction, fiction, television shows, branded entertainment & consultancy.

Deal rationale:

  • Streamlining of Group structure
  • Consolidation of business operations given all the three companies are in same line of business
  • Optimise operational synergies & cost reduction

Consideration

BMPL & BOLT are wholly owned subsidiaries of BTL. As such on demerger & and on subsequent Amalgamation, there shall be no issue of shares by BTL. There will be no change in the shareholding of the holding company BTL.

Shareholding Pattern

  • BMPL Shareholding held by BTL (100%) post demerger & capital reduction – Rs 2crore (20, 00,000 shares with FV Rs10)
  • No change in shareholding of BTL – 7.59 crore shares (57% public & 42% Promoter & family)

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Note: During FY16, BTL issued 10,720,000 equity shares  to raise Rs 150 crore (shares issued at premium of Rs 138 /share amounting to Rs 147.936 crore). The shares were allotted to Atyant capital India Fund, Vanderbilt University, GHI ltd, GHI HSP, GHI ERP Ltd. The proceeds were utilized for the launch of ALT Digital Media Entertainment (ALT Digital Media) ALT digital media is the wholly owned subsidiary of BTL & continue to be WOS of BTL even after the scheme.

Financial Performance

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Name Turnover PBT PAT Reserves & Surplus Total Assets
BMPL 2,298.1 -3,214.1 -3,214.1 -7758 18,862
BOML 75.5 -51.5 -51.5 -179 131

Note: Above represents FY16 Financials in INR lacs.

Capital Reduction

On completion of demerger, 28000000 equity shares of the demerged company with face value of Rs 10 representing Rs 28 crore of the issued, subscribed and paid up capital of the demerged company shall stand cancelled without any payment of the cancelled value of said shares to the shareholders of the demerged company. Capital reduction was undertaken as share capital is unrepresented by available assets.

Taxation

No taxation as Merger / Demerger are tax neutral.

Analysis of structure

Structuring done for carry forward and set off of losses given no change in beneficial shareholding at BMPL & BOML.
Transaction keeps the holding company structure intact with no change in beneficial ownership of Subsidiaries BMPL& BOML. Given the fact that BMPL & BOML have accumulated losses, it looks like the present structuring might have been done for taking the benefit of carry forward & set-off of losses. On merger, the accumulated losses of BOML will be transferred to BLT and will be available for carry forward and set off of losses against future profits.  Similarly, the demerged undertaking (Film production undertaking) is  having accumulated losses that can be set off against the future profits of BTL.

Also merging wholly owned subsidiary (WOS) into the parent company BTL, will have no stamp duty implications. However, it is not very clear why the other subsidiaries (Marinating films) have not been considered for merger, given they are also in the same line of business & are in losses. They could have taken the benefit of setoff &carry forward of losses as well. Also not clear why these subsidiaries were created in the first place.

Conclusion

BTL has identified the Film Business as its strategic growth area for the group and has various projects currently under production/development. The management is fully confident about the long-term profitability of its movie businesses, which has a long gestation period in terms of setting up various in-house functions for optimal utilization of resources, scalability and its monetization. BTL is one of the marker leaders in TV content. It incurred losses in film business till date which they will be able to turnaround post restructuring and with the help of new CEO. Success of new digital business is also critical for the company. Further BTL will have enhanced shareholder value accruing from consolidation of business operations resulting in economies of scale, improving allocation of capital, operational efficiency, and integration of processes thus contributing to the overall growth prospects of BTL.

 

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