Reliance takes control of Network18 Group in first direct exposure to media

Written by Aveek Datta | Mumbai | Updated: May 30 2014, 11:27am hrs
Reliance Industries (RIL) on Thursday said it will acquire control of listed media and entertainment companies Network18 Media and Investments and TV18 Broadcast from journalist-turned-entrepreneur Raghav Bahl, the current promoter of these firms who is all set to exit the companies he founded.

Three people with knowledge of the matter confirmed the development. None of them wanted to be identified. This will be the oil-to-yarn and retail conglomerates first direct exposure to the media industry.

After RIL comes to the forefront vis--vis management of the TV18 Group, it is expected to put in new editorial and business teams in place to replace the existing ones, these sources said.

Not surprisingly, on Wednesday, Network18 announced to the bourses that its chief executive B Sai Kumar had quit. On Thursday, TV18 said in a company filing that RDS Bawa, chief financial officer of the Network18 Group, had quit as well.

It is expected that Bahl, who is managing director of Network18, will follow suit soon, along with senior journalists, one of the persons said. Rajdeep Sardesai, editor in chief of IBN18, which includes news channels CNN-IBN (English), IBN 7 (Hindi) and IBN Lokmat (Marathi), is expected to go on a three-month sabbatical soon.

It isnt immediately clear why RIL has chosen to take direct control of Network18 and TV18, barely two years after it made the original investment, when it had a window of 10 years to do so.

According to one of the persons familiar with the development, the decision to take management control of the two media companies could have been motivated by certain differences between Bahl and RIL with regards to management of operations.

Emails sent to Bahl and RIL on Thursday didnt elicit any response.

In 2012, RIL through an entity called Independent Media Trust (IMT) had invested around Rs 2,200 crore in 10-year, zero-coupon optionally convertible debentures in six holding firms promoted by Bahl. These debentures could be converted into equity shares of these companies any time at RILs call in the next 10 years from the date of such investment.

The Mukesh Ambani-led conglomerate is going to convert at least a part of the debentures it holds in Bahls holding companies over the next few days, these sources said. Upon such conversion, RIL will gain majority shareholding in these firms and, thus, control over Network18 and TV18 (Network18 is the principal holding company of TV18).

In a statement issued to the bourses after market hours on Thursday, RIL announced that it was acquiring a 78% stake Network18 and a direct stake of 9% in TV18.

The board of RIL today approved funding of up to Rs 4,000 crore to IMT, of which RIL is the sole beneficiary, for acquisition of control in Network18, including its subsidiary TV18 and the open offers to be made consequent to the acquisition, RILs statement said. This acquisition will differentiate Reliances 4G business by providing a unique amalgamation at the intersect of telecom, web and digital commerce via a suite of premier digital properties.

Under Indian takeover regulations, an entity acquiring 25% in another listed firm has to make a mandatory open offer for an additional 26% of the target companys shares at the minimum. While IMT doesnt need to invest anything further to gain control of Network18 and TV18 from Bahl, it may be capitalising IMT to fund the resultant open offer and any future capital infusion required by Network18.

Bahls total equity exposure in his six holding firms is around Rs 6 lakh and technically, RIL only needs to convert debentures worth a little more than this amount into equity shares to emerge as the majority shareholder with a 51% stake.

An order issued by the Competition Commission of India (CCI) on May 28, 2013, had pointed out that the Ambani-led firms could end up with a 99.9% stake in each of Bahls six holding companies if it fully converted the debentures it held into equity shares. This, according to the CCI, amounted to change in control at Network18 and TV18 since RIL had secured irrevocable contractual rights to fully acquire these holding firms through which Bahl owns the two listed media entities.

Bahls holding companies used the money raised from RIL to capitalise Network18 and TV18, which in September-October 2012 raised Rs 2,700 crore each through rights issues. The two companies effectively raised Rs 4,000 crore of fresh capital, since Network18 used Rs 1,400 crore from its own right issue to subscribe to its portion of shares in the TV18 rights issue.

Bahls unlisted firms also picked up shares of Network18 and TV18 that went unsubscribed in the rights issue. At present, the promoters total shareholding in TV18 is 57.04% and 72.98% in Network18.

The route that IMTs acquisition of Network18 may follow is a partial conversion of the debentures that it holds in Bahls six holding companies, with the rest of the consideration to be paid directly to Bahl. After a partial conversion of the debentures into equity shares, Bahls stake in his holding firms will stand diluted. IMT is likely to pay Bahl directly for this stake (including a premium for ceding control).

In August, the TV18 group had embarked on a massive restructuring exercise that involved streamlining of operations and cost-cutting through integration of different newsrooms and significant reduction in the media groups workforce. Consulting firms EY and Mercer were hired to advise on the exercise and a number of employees from the editorial and technical teams were laid off.

TV18 also sought to integrate its own operations with those of Hyderabad-based Eenadu Television (ETV). The ETV channels were almost entirely owned by Ambani-controlled firms till the TV18 Group acquired them by utilising funds from the rights issue.