HomeShop18

Following Reliance Industries’ acquisition of Network18, Homeshop18 CEO Sundeep Malhotra, last Friday, addressed a town hall meeting in his Noida office, to allay fears that employees might have about its $75M IPO and the future of its management team. Network18 owns 54.5% in Homeshop18, and has invested $53.8 million in the business.

Malhotra told employees not to worry, and that it would be business as usual at Homeshop18. Responding to an employee’s question about whether Homeshop18 IPO would go as planned, Malhotra said that the process of listing the company on the New York Stock Exchange would continue. However, three board members will change, he added.

MediaNama sources indicate that employees are still concerned about the future of the company, given the speed at which things have changed at Network18. Many employees have stock options in the firm. According to Homeshop18’s filing, in the TV18 HSN Holdings Limited Employee Stock Option Plan 2008 it says,

“As of September 30, 2013 options for a total of 2,486,500 ordinary shares were outstanding, of which options for a total of 2,111,500 ordinary shares had vested and options for a total of 2,070,750 ordinary shares had become exercisable. As of September 30, 2013, 209,750 ordinary shares had been issued upon exercise of options granted under the plan.”

Board Changes Expected at Homeshop18

Speaking briefly with MediaNama, Malhotra said that Homeshop18 has three board members from Network18, and new appointments will be made to the board, but he isn’t aware of who that might be. Filings from April 2014 indicate that Network18 had appointed three of its now ex-employees to the board of Homeshop18: founder Raghav Bahl, CEO B.Saikumar and CFO RDS Bawa. Saikumar and Bawa left Network18 last week, and Bahl will leave following an apparently brief transitional period.

Malhotra said that he holds town-hall meetings monthly, in order to address employee concerns, suggesting that this town-hall meeting was also “business as usual”.

 

Investors had been made aware of a potential acquisition of Network18 by RIL

As a part of its IPO filing, Homeshop18 had pointed out as a risk factor that Reliance Industries could acquire Network18:

“Network18 may be subject to a change of control, which may adversely affect certain commercial arrangements we have with Network18 and its other affiliates.

“Independent Media Trust, or IMT, an Indian trust whose sole beneficiary is Reliance Industries Limited, an Indian corporation with shares listed and publicly traded in India, has subscribed for zero coupon optionally convertible debentures in certain companies through which Mr. Bahl holds his interest in voting equity shares of Network18. These convertible debentures are currently exercisable at the option of IMT and expire on October 30, 2022. The conversion of all of these convertible debentures currently would result in IMT holding a majority of the voting equity shares of these companies. Such a conversion would result in a change of control of Network18, although a change of the single largest shareholder and management of Network18 and certain of its subsidiaries would be subject to certain Indian governmental authorizations.

“If such a change of control were to occur, then IMT may become the controlling shareholder of Network18 and a beneficial owner of the ordinary shares of our company that are currently held by Network18 Holdings Limited. In such an event, our commercial arrangements with businesses currently under the control of Mr. Raghav Bahl may change in a manner that would have a material adverse effect on our business. In its most recent public filing on its shareholding pattern, Reliance Industries Limited has disclosed that its ‘promoter’ and ‘promoter group’ had an aggregate shareholding in Reliance Industries Limited of 45.31% as of December 31, 2013. Under Indian law, a ‘promoter’ is a person in control of a company, and a ‘promoter group’ consists of a promoter combined with certain related parties of the promoter, including entities in which the promoter holds a 10% or greater interest and immediate relatives of the promoter. Reliance Industries Limited has indicated in its most recent annual report that Mr. Mukesh Ambani is its promoter.”

Note that these are standard disclosures, and do not necessarily indicate that the Homeshop18 management was aware of how soon and how swiftly things would change at Network18.

RIL plans to enter the e-commerce space

Reliance Retail, a Reliance Industries company which retails premium brands such as Steve Madden and Quiksilver in India, operates stores for the kids store Hamleys, and has businesses spanning cash-and-carry, footware, fashion etc, has announced plans to enter the e-commerce space this year. More details here.