Viacom18 Media Pvt. Ltd, the owner of the Colors general entertainment channel, and Subhash Chandra’s Zee Entertainment Enterprises Ltd are in initial talks for a potential merger that could create a large media firm with interests spanning broadcast, OTT, live entertainment and movie production, two people aware of the development said.
Viacom18 is a joint venture between TV18 Broadcast Ltd (51%) and US-based ViacomCBS Inc. (49%). TV18 is a unit of Network18 Media and Investments Ltd, majority-owned by Mukesh Ambani’s Reliance Industries Ltd (RIL). Zee Entertainment Enterprises Ltd, founded by Essel Group’s Subhash Chandra, is majority-owned by foreign institutional investors, including Investco Oppenheimer Developing Markets Fund and Ofi Global Fund China LLC. Essel Group’s equity holding is down to 3.9%, although the company continues to be run by Chandra’s son Punit Goenka.
“The merger of Viacom18 and Zee is proposed to be done through a share swap deal. The talks started a few weeks ago, and the deal is unlikely to involve any cash transaction,” one of the two people cited above said, requesting anonymity.
A Zee group spokesperson said the company does not comment on speculation. Representatives of Viacom18 and RIL did not respond to a query.
Viacom18 explored a merger with Sony Pictures Network India last year. Talks were called off in October.
“If a merger takes place, the combined entity will own and manage the largest number of TV channels and have the largest market capitalization in India from the industry,” the person said.
Zee has a market value of ₹21,300 crore. The Network18 stock is trading at ₹52.05 and the company has a market cap of around ₹5,500 crore.
The stock price of ZEEL rose 22% from 5 May to close at ₹222 on 18 June. The benchmark Sensex index rose 7.5% during this period. The stock’s 52-week high was ₹261.
If the deal goes through, the promoters of Viacom18 could become among the largest shareholders of the combined entity as more than 65% of ZEEL is owned by foreign institutional investors.
While the Chandra family is currently running the company, it’s unlikely that they would be mandated to run the combined entity with Viacom18 promoters, who are active investors in the media space, owning a large share.
The person also said that a deal is likely to go through only after the share price of ZEEL moderates by 15-20% from current levels.
The change in management control might prove to be the biggest hurdle to surpass.
“A middle ground has to be worked out by the investment bankers of the two groups,” the second person said on condition of anonymity. “The two parties have to agree to create a content major as a priority rather than looking at their controls in the merged entity. They have to draw a middle-ground, and the share-swap ratio has to be worked out, keeping in mind the interest of both the promoters,” the person added.
RIL’s wholly-owned subsidiary Independent Media Trust holds a 75% control in Network 18 Media and Investments Ltd. As of now, Network 18 Media and Investments Ltd owns 51.17% in TV 18, which, in turn, owns 51% in Viacom 18. All RIL entities together own 60.4% in TV18.
Zee owns 48 channels in India (with more than 620 million weekly viewers) and 120 channels worldwide across 170 countries (with an estimated 500 million additional viewers).
Viacom18 runs 50 channels, including VH1, Nickelodeon, MTV, Colors TV and a range of other regional language entertainment channels.
On the OTT, or over the top, front, Zee’s flagship offering is Zee5, while Viacom18 runs Voot.
A merger of the two companies would create an entity that could prove to be a strong competitor to Star India, the leader of India’s television market by revenue.
In FY20, Star India posted revenues of ₹14,337.5 crore, while Viacom18 posted ₹3,871.7 crore and ZEEL posted ₹8,129.9 crore.
For FY21, ZEEL posted ₹7,729.9 crore, while the corresponding figure for the other two companies is unavailable.
A report by Ficci and consultant EY pegged India’s television market at ₹68,500 crore in 2020 estimated and forecast it would grow to ₹84,700 crore in 2023. However, the industry declined by 13% in 2020.
