Reliance Industries (RIL) is divesting a part of its interest in ETV Channels to TV18 Broadcast Limited. TV18 and Network18 are funding the acquisition through a consolidated Rs 5400 crore rights issue, a part of which is being subscribed to Network18 Promoters backed by RIL backed Independent Media Trust. Around Rs 2100 crore of the funds being raised by TV18 are being used for this acquisition, while the rest will be used to pay debt and for working capital requirements. Essentially, what it suggests is that RIL is indirectly subscribing to TV18 and Network18 debentures through its promoter group, and money raised from that is being used to fund the acquisition of stake in ETV Channels owned by RIL. In addition, the Network18 group will provide preferential access to content from its media and web business to RIL’s subsidiary Infotel Broadband Services.

At the end of it, as Network18 group promoter Raghav Bahl puts it, “our Balance Sheets will become among the strongest in the industry” and that the companies will become debt free. In an email to Network18 employees, Bahl has called this the companys fourth innings, the first starting up, the second being the companys IPO, the third being the companys diversification across general news, entertainment, internet, print, filmed entertainment and e-commerce. The fourth: “…is now, when we have become the largest Indian media company, with a cache of capital and hungry ambition, ready to pile up runs and score a handsome victory on the 5th day of a Test Match (keen cricket lovers will tell you how the most memorable test match victories are recorded by those teams which have the gumption to chase runs in the fourth innings).”

What TV18 is acquiring from RIL

– Regional News Channels: 100% stake in regional news channels, namely ETV Uttar Pradesh, ETV Madhya Pradesh, ETV Rajasthan, ETV Bihar and ETV Urdu channel. RIL is exiting this stake in its entirety.
– 50% stake in ETV Marathi, ETV Kannada, ETV Bangla, ETV Gujarati and ETV Oriya. This leaves RIL with 50%
– 24.5% in Telugu Channels ETV Telugu and ETV Telugu News. RIL will continue to hold 24.5% stake.

TV18 also has an option to buy the balance 50% interest in ETV non Telugu GEC Channels and additional 24.50% interest of ETV Telugu Channels. According to RIL, the stake, which it owns “through investments of about Rs.2600 crores, by its group companies, is being “profitably divested” to TV18 Broadcast Limited.

What Infotel Gets For Its 4G Services

Infotel Broad Band Services Limited has entered into a Memorandum of Understanding with TV18 and Network18 Media and Investments Limited, providing it preferential access to:

(i) the content of all the media and web properties of Network 18 and its associates and
(ii) programming and digital content of all the broadcasting channels of TV18 and its associates on a first right basis as a most preferred customer.

It will use Digital content from entertainment, news, sports, music, weather, education and other genres will be a key driver to increase consumption of broadband. RIL hastens to add that this is one of many partnerships being undertaken by Infotel, probably because as a pipe, it will need to be neutral to encourage participation from other content providers.

How Network18 Is Financing This Deal? Partly Through RIL

So here’s what we make of it, based on the press releases:

– TV18 Broadcast Limited (TV18) has approved a similar rights issue of Rs 2700 crore at not more than Rs 40 per equity share. TV18 will utilise the Rights Issue proceeds to repay the existing debt, fund the acquisition of ETV Channels and fund working capital needs.
– Network18 Media & Investments Ltd has approved a fund raising of up to Rs 2700 crores at a price not more than Rs 60 per equity share. It will utilise the Rights Issue proceeds to repay the existing debt and subscribe to the Rs 1400 crore of the Rights Issue of TV18.
– The Net Aggregate Rights Issue of both Network18 and TV18 will result in a fund raising of about Rs 4,000 crores
– The current Promoter Entities of Network18 will acquire shares worth Rs 1700 crores of this rights issue. They have have entered into an arrangement with Independent Media Trust, a trust set up for the benefit of Reliance Industries Limited, for this. The Promoters also reserve the right to subscribe to any unsubscribed public portion of the Rights Issues.

Why RIL Is Using An Independent Trust & This Cross Company Acquisition From Network18?

The idea here is for Raghav Bahal, Promoter of the Network18 group to retain management and 51% control over both TV18 and Network18. RIL needs to maintain editorial independence and more importantly, the perception of editorial independence for the Network18 news channels to sustain. In its media release, RIL states: “Mr. Raghav Bahl and his team will continue to have full operational and management control of both the companies. Mr. Raghav Bahl and the current Promoter Entities of Network18 and TV18 will continue to retain control over Network 18 and TV18. RIL reposes full faith in the current leadership and management team of Network18 and TV18.

The investments in these media properties are being made by RIL through an independent trust which will have eminent individuals as Trustees, thus preserving the management, operational and editorial independence of these media companies.”

More when we have it.