Reliance Industries Backs Network18 In Mega Deal, Makes Big Bet On New Media Biz

3 Jan, 2012

Reliance Industries Ltd(RIL), that had made a big bang entry into communications field with acquisition of 4th generation broadband firm Infotel, has struck a deal that will eventually give it a major equity stake in Network18 Group that operates a string on new media businesses besides e-commerce sites.

In the first leg of a multi-tiered transaction, Raghav Bahl-led of Network18 Group is acquiring a string of regional language news besides general entertainment TV channels under Eenadu Group owned by RIL for upto Rs 2,100 crore($395 million).

RIL, that had earlier picked a large stake in the Eenadu Group but had kept it under wraps till now, will indirectly fund this acquisition by bankrolling the promoter group firms through equity convertible debt. In the future this will give it a significant equity stake in Network18 Group, and thereby a large exposure to bustling media sector in India.

Besides marking a big bang entry into the media business, the latest deal also brings synergies for RIL's foray into communications sector.

Infotel Broad Band Services Limited (Infotel), a subsidiary of RIL, has also entered into a Memorandum of Understanding with TV18 and Network18 for preferential access to all their content for distribution through the 4G broadband network being set up by Infotel.

As  per the MoU, Infotel will have preferential access to the content of all the media and web properties of Network 18 and its associates and programming and digital content of all the broadcasting channels of TV18 and its associates on a first right basis as a most preferred customer.

RIL expects digital content from entertainment, news, sports, music, weather, education and other genres will be a key driver to increase consumption of broadband.

The deal will give RIL a huge exposure in the media business spanning areas such as television, Internet, filmed entertainment, e-commerce, magazines, mobile content and allied businesses including prime properties such as CNBC-TV18, CNN-IBN, MTV, Colors and among others. It will also strengthen the group's new media business with a solid content base for the launch of broadband business housed under Infotel.

Network18-RIL Deal:

Under the agreement, the board of directors of TV18 Broadcast Limited (TV18) on Tuesday approved the acquisition of 100 per cent stake in regional news channels in Hindi namely ETV Uttar Pradesh, ETV Madhya Pradesh, ETV Rajasthan and ETV Bihar and ETV Urdu channel besides 50 per cent stake in general entertainment channels ETV Marathi, ETV Kannada, ETV Bangla, ETV Gujarati and ETV Oriya and 24.50 per cent in ETV Telugu and ETV Telugu News.

TV18 will have board and management control of ETV News Channels and ETV non Telugu entertainment channels. The Board has approved an outlay of up to Rs 2,100 crore for this acquisition.

Additionally, TV18 has an option to buy the balance 50 per cent interest in ETV non Telugu GEC Channels and additional 24.50 per cent interest of ETV Telugu Channels, currently held by RIL Group.

To fund the acquisition, both Network 18 and TV18 in separate board meetings today approved rights issue to the tune of upto Rs 2,700 crore each. Network18, being the promoter and holder of majority equity in TV18, would be subscribing to about Rs 1,400 crore in the rights issue of TV18 "therefore, once this subscription amount is netted out, the net aggregate rights issue of both Network18 and TV18 will result in a fund raising of about Rs 4,000 crore.

The contribution of the current promoter entities of Network18 in these twin issues will be about Rs 1,700 crore. Besides subscribing to their full portion, the promoters of Network18 will also reserve the right to subscribe to any unsubscribed public portion of the rights issues.

It is here that RIL would come in to indirectly fund the transaction. Raghav Bahl, the promoter of Network18 and TV18, has disclosed that promoter companies have entered into an arrangement with Independent Media Trust, a trust set up for the benefit of RIL, to secure the funding required for this purpose.

Bulk of the promoters contribution to the rights issue would come from an investment trust of RIL that will subscribe to optionally convertible debentures of the promoter entities of the Network18 Group.

So even as RIL will have rights to pick a major stake in Network18 group firms in the future, Raghav Bahl as  founder and promoter, shall continue to retain management and 51 per cent control over Network18 and 51 per cent control over TV18 through Network18 in the near future.

TV18 will utilise the money to repay the existing debt, fund the acquisition of ETV Channels and fund working capital needs. Network18 will utilise the funds raised to repay the existing debt and subscribe to the rights issue of TV18.

In a statement Bahl, founder, editor & managing director of Network18, said: "By inducting such a significant amount of equity, our balance sheets will become among the strongest in the industry."

What Does It Mean For Network18 Group:

By acquiring this strategic control over several ETV Channels, TV18 will have an expanded bouquet of television channels.

ETV is one of the leading TV Networks in South India and it is also among the top five broadcast networks in the country. ETV Channels were one of the first entrants in the regional markets and have a considerable viewership base.

On a combined basis, TV18 will be offering a mix of national and regional channels catering to diverse genres like Hindi and regional entertainment; general news in English, Hindi and regional languages; business news in Hindi, English and regional languages; music; kids; devotional and infotainment channels.

Including the soon-to-be-launched services/variants, this combined bouquet of over 25 channels will make Network18 a formidable player in the media & entertainment business.