Sunday, October 14, 2012

RIL, Network18 and TV18 deal structuring


As per Scheme of Arrangement and letter of offer submitted to SEBI, Network 18 Media & Investments Limited (Network18), through its subsidiary TV18 Broadcast Limited (TV18), will acquire
  1. 100% interest in ETV News Channels – ETV Uttar Pradesh, ETV Madhya Pradesh, ETV Rajasthan, ETV Bihar and ETV Urdu.
  2. 50% interest in Non-Telugu Regional and Entertainment channels – ETV Marathi, ETV Kannada, ETV Gujarati, ETV Bangla and ETV Oriya. Further, it has an option to buy balance 50% interest and 
  3. 24.5% interest in Telugu regional and entertainment channel, with option to acquire additional 24.50% interest.
As per the terms of the deal, TV18 will acquire Equator Trading Enterprises Private Limited (Equator) for aggregate consideration of approximately Rs.19.25 billion. Post acquisition, Equator will become a wholly owned subsidiary of TV18.

Equator has and will retain
  1. 100% interest in Panorama Television Private Limited, that controls 100% stake in ETV news channel,
  2.  50% interest in Prism TV Private Limited, that controls ETV non Telugu regional and entertainment channels and 
  3. 24.50% interest in Eenadu Television Private Limited, which controls ETV Telugu regional and entertainment channels.
The deal will enable Mr. Nimesh Kampani of JM Financial to exit its investment. Further, the Securities Purchase Agreement (SPA) is entered by Reliance Industrial Investments and Holdings Limited (RIIHL), a subsidiary of RIL with TV18 and Network18.

As per SPA, Altitude Mercantile Private Limited (Altitude) and Kavindra Commercials Private Limited (Kavindra), which together represents 100% equity stake in Equator, will transfers their stake to Arimas Trading Private Limited (Arimas), a subsidiary of RIL. Arimas will in turn sell and transfer Equator Securities to TV18.

Terms of the Issue
Figures in Rs. Millions, Except Shares
Network 18
TV18
Issue Size
 26,996.22
 26,991.56
Issue Expenses
 746.22
 741.56
Net Proceeds of Issue
 26,250.00
 26,250.00



Number of Shares to be Issue
899,873,930
1,349,577,882
Issue Price (Face value + Premium)
Rs. 30 (5 +25)
Rs. 20 (2 + 18)
Right Issue ratio (New: Existing)
307:50
41:11

The funds raised through right issue of equity shares will be used for repayment of Existing Debt, acquisition of ETV news and regional entertainment channel and working capital requirement.

Utilization of Issue Proceeds:
Network 18
Issue Proceeds (Rs. Millions)
% of total proceeds
Repayment of Debt
                11,122.7
42.4%
Investment in subsidiary TV18
                13,840.0
52.7%
General Corporate purposes
                  1,287.3
4.9%
Total
                26,250.0
100.0%



TV18
Issue Proceeds (Rs. Millions)
% of total proceeds
Repayment of Debt
                  4,216.0
16.1%
Acquisition of ETV channels
                19,250.0
73.3%
General Corporate purposes
                  2,784.0
10.6%
Total
                26,250.0
100.0%

To carry out the acquisition, the Independent Media Trust (IMT) is formed. Reliance Industries Limited (RIL) is a sole beneficiary of the trust and Nilrab Media Private Limited, which is owned jointly by Mr. Raghav Bahl (owner of Network18) and Ms. Ritu Kapur (wife of Mr. Raghav Bahl), acts as a trustee.

IMT will provide funds by way of subscribing to Zero Coupon Optionally Convertible Debenture (ZOCD) to six promoter companies, which in turn will provide funding for promoter’s share in right issue. Also, additional funds would be raised by allotting ZOCD to the extent of successful completion of acquisition of ETV channels and to subscribe unsubscribed equity shares of right issue of Network 18 and TV18.

The six promoter companies together hold 36.90% in equity shares of Network 18. So, to subscribe its entitlement the promoter will require funds to extent Rs.9.96 billion. To raise funds for its entitlement, the promoter companies will issue at least 99.63 million ZOCD to IMT. Further, the promoter companies has given an undertaking to subscribe any unsubscribed portion of right issue, in such situation the total amount of funds raised by issuing ZOCD would increase, thereby promoter companies will hold more than 36.90% of equity stake in Network18.

ZOCD are freely transferable and the holders of ZOCD have an option to convert debentures into equity shares of subscribing companies or redeem its investment within the period of 10 years from date of subscription. If the holders of ZOCD opt for the conversion, it will result in ZOCD holders owning more than 51.0% of equity stake in subscribing companies; thereby change in control of the six promoter subscribing companies. This in turn will result in change in control of Network 18 and its subsidiary TV18, i.e. RIL acquiring substantial stake in Network18 group.

Benefit for Network18 Group
  1. As a part of the deal, the Network18 and TV18 have also entered into a Memorandum of Understanding (MoU) with Infotel Broadband Services Limited (Infotel), a subsidiary of Reliance Industries Limited, to distribute media content of all broadcasting channels through 4th Generation Broadband Network of Infotel. Further, Infotel shall have preferential access to this content on a first right basis as a most preferred customer.
  2. Further, Network18 group would gain pan-India presence, through ETV network of news and regional entertainment channel. This will also enable Network18 group to compete with other media companies like STAR and Zee.  
Reference
  1. Dilip Kumar Jha (September 18, 2012), ‘Network18 shares fall after rights issue open’, Business Standard, viewed on October 12, 2012 <http://www.businessstandard.com/india/news/network18-shares-fall-after-rights-issue-open/187278/on>;
  2. Moneycontrol.com (January 03, 2012), ‘TV18 to acquire ETV channels for Rs 2100crore’, viewed on October 12, 2012  < http://www.moneycontrol.com/news/business/tv18-to-acquire-etv-channels-for-rs-2100-crore-_644084.html>
  3. Network 18 Corporate website (January 03, 2012), ‘Network18 and TV18 announce Rights Issues’, viewed on October 12, 2012  < http://www.network18online.com/reports/Network18PressRelease-03-01-2012.pdf>
  4. Arijit Barman & Varada Bhat, (December 14, 2011), ‘Eenadu TV close to merger deal with Network18’, viewed on October 12, 2012<http://www.business-standard.com/india/news/eenadu-tv-close-to-merger-dealnetwork18/458499/>
  5.  IndianTelevision.com Team, (2 October, 2011), Reliance can get 51% of Network18, viewed on October 12, 2012 
  6. Letter of Offer ‘Network18 Media & Investments Limited’ (August 31, 2012), as filled with SEBI
  7. Letter of Offer ‘TV18 Broadcast Limited’ (August 31, 2012), as filled with SEBI