Mukesh Ambani?s big media bet

MUMBAI: The New Year is seeing the emergence of a new media czar. Stuffed with a rich pile of cash, India?s richest billionaire is swiftly building a broadband-media-entertainment empire. The role model could be somewhat like an expanded Netflix.

Mukesh Ambani had already spelt out his intentions that he would enter the content game. His joint venture with sports marketing major IMG had given him rights to several emerging sports properties like basketball (Basketball Federation of India) and soccer (AIFF). He also owns IPL team Mumbai Indians.

In June 2010 his Infotel Broadband had won nationwide BWA spectrum paying $2.7 billion. And to support the wireless data flow he had content ambitions and last year recruited former Star India COO Jagdish Kumar to head his entertainment division. Besides, Reliance Industries invested Rs 26 billion in Eenadu, the fulcrum that led him to bargain his way into Raghav Bahl-promoted TV18 Group.

Reliance Industries Ltd (RIL) has got Rs 21 billion from TV18 Group for divesting part of its stake in Eenadu. It will, in turn, invest in the rights issues of Network18 and TV18. What it will indirectly hold as equity stake (after convesersion of OCDs) in these two entities is not disclosed.

According to estimates by a media analyst at a local broking firm, TV18 is buying only 64 per cent of economic interest in ETV?s revenues. Network18 and TV18 will go for a rights issue of Rs 27 billion each. Since N18 holds 50 per cent in TV18, the net aggregate rights proceeds will be for Rs 40 billion.

The promoters of TV18 and N18 will put Rs 17 billion in the net aggregate rights issue and minority shareholders will have to shell out Rs 23 billion.

The rights issue will help pare down debt and acquire ETV Network.

TV18 Broadcast will buy ETV Network (with various shareholding across channels), from a subsidiary of RIL, for a consideration of Rs 21 billion. A trust of RIL will fund the promoters of N18 through OCDs (Optionally convertible debentures). The promoters will then be able to subscribe to the rights issues.

"In our view TV18 has acquired effective 64 per cent economic interest in ETV Network?s revenues by paying Rs 21 billionn valuing the 100 per cent entity at Rs 33 billion. Assuming that media reports of Rs 5.25 billion sales in FY?11 is true for ETV Network, TV18 has paid a trailing EV/Sales valuation of 6.3x which seems on the higher side when compared to Sun TV?s trailing EV/Sales of FY11 at 5.5x (with dominant viewership and highest profit margins) and ZEEL?s at 3.5x," said the analyst.

The rights issues will inject funds into the two debt-laden companies. Network18 had a net-debt of Rs 14.3 billion while TV18?s net debt pile stood at Rs 6.8 billion as on September 2011.

ETV?s portfolio and stake bought in each channel by TV18:

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