Walt Disney Plans To Delist UTV Software; Deal May Cost $500M

27 Jul, 2011

The Walt Disney Company has announced a delisting offer for its India unit UTV Software Communications Ltd, looking to take the media & entertainment firm private, which might cost between Rs 2,100-Rs 2,150 crore ($482 million). The Walt Disney Company (Southeast Asia) Pte Ltd, which currently holds 50.44 per cent stake in UTV Software, has indicated a floor price of Rs 1,000 per share.

The share price of UTV Software climbed up on Tuesday to hit a 52-week high of Rs 1,050 before closing at Rs 950.45, up 5.39 per cent at the BSE. The share price of UTV Software has shot up 47 per cent since May 31 this year. The valuation of UTV Software Communications has come a long way since The Walt Disney Company had first picked up its stake in the firm in September, 2006. It had initially picked up 14.85 per cent stake at a valuation of around $100 million (or Rs 192.5 per share) and since then, has been increasing its holding. Data from VCCedge, financial research arm of VCCircle, shows that till date, the Walt Disney Company has spent Rs 1,180 crore or $265 million for its stake in UTV Software.

As a part of its plans, Disney also intends to buy out the 19.82 per cent stake held by the original promoter group (RS Promoters), which includes Rohinton (Ronny) Screwvala, Unilazer Exports and Management Consultants, Unilazer (Hong Kong) and Zarina Mehta. While RS Promoters will not participate in the delisting offer, they will also exit the firm if the delisting offer is successful.

Disney needs to acquire a minimum of 90 per cent, the minimum threshold required for delisting a company from the stock exchange. This means Walt Disney will need to buy at least 20 per cent stake from public shareholders to delist the firm. Some of the institutional shareholders in UTV Software include Somerset India Fund and the Blackstone Group's India Fund Inc.

Thereafter, Ronny Screwvala will cease to be an employee of UTV Software and will become the managing director of The Walt Disney Company India Pvt Ltd, overseeing all Disney-owned firms in India, including UTV Software. Assuming an offer price of Rs 1,000 per share, Walt Disney will have to spend over Rs 1,400 crore to buy 29-30 per cent stake held by the public shareholders, including convertible securities. With the buyout of the remaining promoters, the overall deal size might be Rs 2,100-Rs 2,150 crore at the same share price.

What Next For Other Businesses?

The media & entertainment company currently has a presence across five verticals – broadcasting (channels like UTV Movies and Bindass), gaming content (IndiaGames, Ignition Entertainment), motion pictures, interactive and TV content.

UTV Software reported 39 per cent increase in total income to Rs 946.8 crore in FY11, with net profit jumping 174 per cent to Rs 135.47 crore. Nearly half of the revenues came from the movies business while around 35 per cent came from its television business and the remaining came from gaming and interactive.

After taking UTV Software Communications private, the next question that Walt Disney may need to consider is what does it do with some of its non-core businesses. Earlier this year, media reports had suggested that the management and some of the existing investors (Cisco and Adobe) in its unit IndiaGames, (where they hold 50-60 per cent stake) are looking to buy out UTV Software's stake. Watch out for this space for more news.