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NDTV Board Approves Demerger Of News, Non-News Businesses

BSE listed NDTV Ltd will be split into two groups of companies – one of which will focus on the News business, while the other will focus on the Entertainment business. Both the companies will be listed on the BSE, and for every one share of NDTV Ltd, shareholders will receive one share each of the News and Entertainment businesses. The names for the two entities haven’t been announced yet. The demerger will take place on 1st April 2009.

Impact On NDTV Convergence and NDTV Networks PLC
NDTV Convergence, which houses the groups Internet and Mobile businesses, is a subsidiary of NDTV Networks PLC, will not be affected directly by this move. However NDTV Networks PLC, which is a subsidiary of NDTV Ltd, and had raised $150 million for a 26 percent stake from NBC Universal, is, in all likelihood, going to be a part of the Entertainment segment.

While the market isn’t right (take a look at the decline in NDTVs share price), our take is that the two businesses have been separated in order to raise further capital for the entertainment business. Fundraising for the News and current affairs business is constrained by a government mandated 26 percent Foreign Direct Investment (FDI) limit. By separating the two, NDTV will be free to sell as much equity as it wants for the Entertainment business. Who’s going to pick up stake in the Entertainment business? I wouldn’t be surprised if it’s NBC Universal that increases their holding.

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