But the stock market slump has now made the scheme come unstuck. Bennett has lost 50 per cent of its equity investments in listed companies (see table on Page 16; no information is available on unlisted companies). From Rs 624 crore, the value of its investments is down to around Rs 308 crore. Times Treaties’ stock in Pantaloon Retail, Videocon, Gitanjali Gems and Sahara One Media have taken a major hit. Overall, the total value of investment in the treaties business is said to have declined from Rs 2,700 crore to Rs 1,350 crore.
That figure is contested by S Sivakumar, Private Treaties CEO and acting CFO of Bennett, Coleman. He said although the value of investments in private treaties has declined, the Rs 2,700 crore figure is an exaggeration. “The total investment value in the business is closer to Rs 2,000 crore, he said. Besides, listed companies are only a small percentage of the 240 treaty clients, he added. Unlisted companies in the Times Treaties portfolio have also lost 40 per cent of their investment value, according to him.
Still, the Treaties division has been trimmed, from 140 to 100 people.
THE company has also tweaked its business model to meet the changing market conditions.
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Not all Times Treaties are equity-based. Real estate companies offer property in exchange for advertising space. In other product categories, the contracts are sales-linked, under which between 55 and 70 per cent of the payment for advertisements is in cash. The remaining compensation is linked to sales.
A former Bennett executive closely associated with the Treaties division said trouble began when the company started signing up clients indiscriminately. “Instead of investment experts, the company’s junior executives started signing 40 to 50 equity deals a year. And these were at very high valuations,” he said.
That’s not all. The original concept was to buy equity in companies within striking distance of an IPO. Later, almost 75 per cent of the deals were inked with small, privately-held companies that offered no easy exit route for a minority shareholder. “Though a good concept, the trouble with private treaties was that it was envisaged during a bull run,” observes a former senior Bennett employee. “When you are handling equity, you should be prepared for a downturn, too,” he said.
Sivakumar denied that the private treaties model has collapsed. He said it continues to be the most innovative revenue stream because it monetises perishable inventory (like an empty aircraft seat) — and the fact that it would bring in cash for otherwise unused ad space was one of the virtues of the scheme. “The principle is that cash clients are never cannibalised,” he says.
Though the value of investment is believed to have diminished, the Private Treaties division continues to be profitable, Sivakumar says. He argued that the company should have spent Rs 2,000 crore, but had served ads only worth Rs 600 crore in the past three years.
Asked if the company isn’t committed to serving ads for the balance Rs 1,400 crore as well, he says that is not necessarily the case. Bennett may not serve the ads in cases in which the ad-for-equity barter is linked to the benchmarks being achieved by the companies concerned. “The companies were meant to meet their growth projections before their ads could be released,” said Sivakumar.
| Investment company | Acquisition cost per share (Rs) | Total cost (Rs crore) | Current value* per share (Rs) | Total value (Rs crore) | % |