M & A CritiqueIn order to leverage its 4-G operations, Reliance Industries Ltd (RIL) has taken complete control of Network 18 Media and Investments Ltd, including its subsidiary TV18 Broadcast Ltd. and the Board of Reliance Industries Limited also approved funding of Rs 4,000 crore to Independent Media Trust (IMT), of which RIL is the sole beneficiary for taking over Network18. IMT would use the funds to acquire control over NW18 and TVE18 resulting in ownership of about 73.10% in NW18 and 55.01% in TV18 and to acquire shares tendered in the open offers.
The acquisition will enable Reliance Industries to provide telecom, web and digital commerce content to its 4G subscribers
NETWORK18
Founded by Raghav Bahl, Network18 is one of India’s largest media companies, which owns television channels CNBC TV18, CNN-IBN, CNBC Awaaz; websites Moneycontrol.com, firstpost.com; print magazines Forbes India, Overdrive; general entertainment channel Colors and Homeshop18, a television and Internet retail venture, among various other media and non-media businesses.
In late 2011 consolidated debt of almost Rs1,400 crore on the books and in the quarter ended 30 September 2011, Network18 had widened its consolidated net loss to Rs 70.26 crore from Rs 64 crore in the previous quarter. In the 12 months preceding that, the company’s scrip had slid almost 70%. The company’s cash generating business, its news television business, was under pressure. With the prolonged economic downturn, advertising revenue had dried up. And also Bahl’s bet on the Web and general entertainment ventures, into which a lot of money had been invested, was taking the time to pay off. Most of the businesses were in need of capital investment but Bahl didn’t have any money. Interest costs were already too high and with the company’s net worth almost eroded, banks weren’t willing to lend anymore. Bahl was clear he needed help. He rejected Haresh Chawla, then Network18’s CEO’s idea to raise money by divesting a stake in the entertainment business to Viacom because it was a depressed market and the valuation was low.
Bahl needed someone with deep pockets someone whom he could respect, and who, in turn, would respect him. The one man he reached out to was Mukesh Ambani. The richest man in India, who in the past has rescued several other entrepreneurs in need of help, was not averse to Bahl’s idea.
In January 2012, RIL made an investment in Network18’s promoter group companies through a newly created vehicle called Independent Media Trust (IMT). The promoters, led by Bahl, used funds received from the trust to infuse cash into Network18 and its subsidiary TV18 Broadcast Ltd, apart from buying RIL’s stake in the ETV channels. RIL’s investment was made in the form of zero coupon optionally convertible debentures in Network18’s promoter group companies controlled by Bahl. The debentures can be converted into shares at any time within a 10-year period since its issuance, and its conversion will result in an ownership of over 99.9% by RIL in these entities, according to an order by the Competition Commission of India.
Raghav Bahl and the promoters of Network18 and TV18 continued to retain control over Network18 and TV18. Network18’s financials had improved considerably since RIL invested indirectly in the company. In the year till March 2012, before the investment, the company reported operating losses worth Rs 270 crore on revenue of Rs 1,952 crore. In the year till March 2014, it turned profitable at the Ebitda (earnings before interest, tax, depreciation and amortization) level, with a profit of Rs.87.2 crore on consolidated revenues of Rs.2,692 crore.
The person familiar with the happenings in the board meeting said Bahl and his team didn’t ever think RIL would oust them and seize control. Everyone wishes they could turn the clock back.
Now with this, there is change also the management of Network18’s as some of the top executives/heads have announced their exits. Network18’s chief executive officer (CEO) B. Sai Kumar, chief operating officer Ajay Chacko, and chief financial officer (CFO) R.D.S. Bawa have all quit after the announcement. Alok Agrawal, the former CEO at Zee News, is likely to head the new team at Network18. Meanwhile, Avinash Kaul, former CEO of Times Television Network, has been appointed as the new head for IBN Network and will manage three news channels—CNN-IBN, IBN7 and IBN Lokmat.
WHY TAKEOVER BY RIL?
For RIL, the takeover is a strategic move for its 4G telecom play in the country. The acquisition will differentiate Reliance’s 4G business by providing a unique amalgamation at the intersection of telecom, the web and digital commerce via a suite of premier digital properties. To put it simply, RIL now has access to all the content put out by the Network18 group; this includes in.com, IBNlive.com, Moneycontrol.com, Firstpost.com, Cricketnext.in, Homeshop18, Bookmyshow.com and broadcast channels like Colors, CNBC TV18, CNN-IBN, IBN7 and CNBC Awaaz.
WHY INVESTMENT BY RIL THROUGH TRUST:
This structure might not have required RIL to consolidate the results of Network 18 with its own. Because in the middle lies a trust, the IMT. And RIL is the sole beneficiary of IMT. Whereas Reliance Industrial Investments and Holdings Limited RIIHL) is the protector of IMT and Digital Content Private Limited & Sanchar Content Private Limited are the trustee. So RIIHL will act as main point contact between RIL and trustees of IMT.
VALUATION:
The acquisition of Network 18 and TV 18 by Reliance of at Rs. 41.04 per share and 30.18 per share respectively is less comparative to the current market value of Network 18 and TV 18 Rs. 61.00 per share & Rs. 32.55 per share respectively.
WAY FORWARD:
As per Sebi’s (Securities and Exchange Board of India’s) Substantial Acquisition and Takeover Regulations 2011, IMT would be making Open Offers to public shareholders if all goes well through SEBI for the acquisition of equity shares in NW18 and TV 18 at Rs. 41.04 per share & Rs. 30.18 per share respectively with opening date 14th July 2014 and the closing date is 4th August 2014. The proposed shareholding by IMT after the acquisition including the open offer would be 95.05% and 81.01% in Network 18 and TV 18 respectively.
Bahl’s request for help from Reliance turned the game and RIL finally acquired the company. RIL now has to explore various synergies to benefit all the stakeholders in the coming years.
