Eros International announces all-share merger with STX Entertainment

In a first of its kind deal, Indian movie producer and distributor Eros International on Saturday announced an all-share merger with Hollywood's STX Entertainment to create an equally-held global entertainment company.

The six-year-old, privately-held STX has done 34 movies including 'Hustlers' and 'Bad Moms' which have cumulatively grossed $1.5 billion, while Eros focuses primarily on the Indian and diaspora markets by producing movies and distributing them  through an OTT platform.

In the past, a lot of Indian actors have gone to Hollywood and Indian businesses like Anil Ambani's Reliance Entertainment have taken equity stakes in Hollywood companies.

The deal, which comes at a time the entire movie production sector is shut in major global markets due to the Covid-19 pandemic, will see STX merging into the NYSE-listed Eros International (which is also the holding company of the Lullas-promoted Eros Group) and creating an enterprise with a $1 billion valuation, Pradeep Dwivedi, the chief executive for Eros International Media, told PTI.

Existing shareholders of Eros and STX will each hold about 42 per cent of the merged entity each, while the remaining 15-odd per cent will be with new shareholders, he said, adding that fresh capital of $125 million is being raised from STX's existing investors, including TPG, Hony Capital and Liberty Global.

Over $75 million in commitments have been already received, while the rest will be tied-up before the execution of the merger, which is targeted to close by June-end, he said.

Eros is issuing contingent value rights to the STX shareholders which will eventually be converted into shares ahead of the merger, Dwivedi said, adding that the amalgamation will have no impact on the group's arm listed on Indian bourses.

Dwivedi said a merger between the two companies will bring together talent from Bollywood and Hollywood, resulting in collaboration on projects and jointly accessing the mega market of China.

STX already counts Chinese internet giant Tencent as one of its investors, which will give the merged company a foothold in the world's most populous country.

"The transaction will create the first publicly traded, independent content and distribution company with global reach and unique positions in the United States, India and China," said Eros in regulatory filings at stock exchanges. "The combined company, to be called Eros STX Global Corporation, will have a robust pipeline of feature-length films and episodic content with powerful and well-established positions in the world's fastest-growth global markets," it said.

Apart from market access, the merger will also give the company additional heft from finance perspective, he said, adding the revamped capital base has led JP Morgan to open a $350 million credit facility.

The merged entity had a revenue of $600 million for calendar year 2020, and over $300 million of predictable aggregated future revenue from STX Entertainment films already released in 2019, a statement said.

There are also operational synergies of $50 million across global operations, he said. The transaction is subject to regulatory approvals and closing conditions. It is expected to close in the second calendar quarter of 2020.

"While Bollywood has the scale, financially speaking, we have some way to go and to learn from Hollywood. This merger will help in that," Dwivedi, who will continue in the same role post-merger, said.

Plans are already afoot to deploy the money and launch joint projects which may include presenting Indian mythology in a global style and context, Dwivedi said. The projects will be disclosed ahead of the merger.

Dwivedi said Eros' Kishore Lulla will be the executive co-chairman of the merged entity, while Robert Simonds of STX will be the co-chairman and chief executive. He said Lulla and Simonds have known each other for over two decades and called it a "cultural fit" to lead the company.

Talks of such a deal were on for a long time before the Covid-19 pandemic, Dwivedi said. The pickup in digital consumption during the crisis makes it the right time to announce such a deal as it will ensure in quick content creation for Eros' OTT platforms, he added.

The Eros scrip zoomed 55.61 per cent in trade at the NYSE on Friday following the announcement to $3.05 apiece.