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Updated: Disney To Buy Indiagames Promoters Stake For Rs 94.56 Crore; What Will Change?

Update: So, here’s the real deal:

UTV is buying 30.02% in Indiagames from its Founder Promoters and Employee Shareholders for Rs 94.56 crore, following which it will increase its stake to 86.02%, from 56%. It is negotiating with other shareholders to increase its stake to 100%.

The valuation at which the promoters and employee stake has been picked up values Indiagames at 314.99 crore, or $61.24 million, and not the $80-100 million reported by AllThingsD. That said, there’s no telling what price the shares will be purchased from the remaining shareholders.

Note that the stake has been purchased by UTV, not Disney, but it’s likely that Disney is buying Indiagames through UTV. Disney is in the process of acquiring 100% in UTV and delist it anyway.

Earlier: Inevitable as it seems, Disney is set to buy Indiagames Ltd, probably India’s largest mobile gaming company, at a valuation of between $80-100 million, reports AllThingsD. Why inevitable? Because Disney is also in the process of buying out UTV Software, a film, television and gaming conglomerate which is a majority shareholder in Indiagames. The buyback process hasn’t even begun yet, and could take months to complete, with approvals and an open offer pending.
The terms of the Indiagames-Disney deal are also not known, especially the lock-in period for the promoters. Note that MediaNama could not independently confirm this development – Indiagames founder Vishal Gondal did not return calls – at the time of filing this report.

Disney’s bid to acquire UTV probably happened at the wrong time for Indiagames, because Indiagames promoters were looking at a PE backed promoter buyout for the firm. Rumor had it that UTV was looking at a $100 million valuation for the business. As of 31st March 2010, the shareholding in UTV Indiagames was:
– Indian Promoters: 19.59%
– Private Corporate Bodies: 60.40%
– Employees: 5.38%

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So assuming a $80-100 million valuation, and assuming a 100% buyout, the Indian promoters could get $15.67 – 19.59 million, and through ESOPS, between $4.3-5.38 million could get vested. UTV had bought 51% equity stake for Rs 68 crore ($13.8M at current rates) in Indiagames in 2006, valuing the company at around Rs. 133.33 crore ($27 million at current rates), and later increased its shareholding to 58%.

Indiagames Financials

For the financial year ending 31st March 2011, Indiagamesreported a profit of Rs 2.47 crore (around half a million dollars) on revenues of Rs 54.51 crore (around $11.09 million):

Product Revenue: Rs 37,95,14,574 ($7.72 million)
Service revenue: Rs 9,70,50,447 ($1.97 million)
Sponsorship/Advertising revenue: Rs 3,82,12,303 ($0.77 million)
Sale of Goods as Master Service Provider: Rs 91,52,656 ($0.18 million)

As of 31st March 2011, Indiagames had 191 employees in mobile, 16 in Games on Demand, and 24 others.

A few thoughts: 

– An Exit, Finally: A 100% buyout could mean that the promoters will finally exit the Indiagames business. Many a gaming industry executive has marveled at Indiagames founder Vishal Gondal’s ability to get new buyers for the business again and again. Indiagames investors have included Tom Online, Macromedia (rather, Adobe), and Cisco, apart from UTV.

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–  More Money, More Game Development? Even if you look at UTV’s backing of gaming businesses – Ignition, TrueGames and Indiagames, Indiagames probably had the least amount of monetary backing among them, and Ignition the most. Typically, Indiagames followed two business models – it leveraged its distribution relationships with telecom operators in India to sell international IPs, and also licensed IP from movie producers and sports events like the Indian Premier League to develop and retail games. They also did games based on UTV Movies. The acquisition by Disney could mean that the mobile gaming business in India could get more money for licensing and development, and focus on a separate franchise development model, like the company has done in case of Cricket, and a recent deal with the Shah Rukh Khan starrer Ra.One.

– Disney Game Development Back Office? It’s unlikely that much of Indiagames’ game development work will shift to Disney, but the company could look at getting some game development done in India, and look to strengthen Indiagames as a resource for this.

The one thing I’m curious about is how this might impact the Indiagames in terms of the flexibility Indiagames has had in terms of operations. Disney India hasn’t exactly done anything significant in the digital space in India, and has typically appeared slow-to-move. Initially, at least, it will be focused on approvals and de-listing UTV.

How do you think the Disney’s acquisition of Indiagames acquisition will impact the gaming business in India?

Corrigendum: In hindsight, I think a certain statement made by me in this post was in poor taste, and unbecoming of me. That statement has been removed from this article below, and my sincere apologies to Indiagames for it.

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