Shares of all Network18 group firms tumbled today, a day after the media group announced plans to restructure its business.
Network18 had said on Wednesday it would separate its business into two listed entities — a broadcast company and a digital and publishing unit — to simplify ownership and give shareholders an option to mitigate their risk on the group's loss-making units.
While Network18 plunged 14.48 per cent to close at Rs 140.60, TV18 tanked 12.09 per cent to close at Rs 84.70 on the Bombay Stock Exchange (BSE). Shares of the group’s other firms were also in the red, with Infomedia18 losing 8.46 per cent at Rs 29.75 and IBN18 falling 3.57 per cent to Rs 101.25.
BSE's benchmark index, the Sensex, gained 180.70 points today to close at 17,651.73.
Network18’s share performance mirrors that of Reliance Natural Resources Ltd (RNRL) after it was merged with Reliance Power last Sunday. The following day, RNRL shares had crashed by over 27 per cent to Rs 46.30, mainly because the market perceived the swap ratio as adverse.
Network18 “stocks had run up in anticipation of restructuring within the group. Post-announcement, investors are booking profit in these counters,” said Aashish Upganlawar, a media sector analyst with Mumbai-based brokerage Sharekhan. “IBN18 has emerged as the major beneficiary, as all the profitable and high-growth businesses have been transferred to it. That’s why it has fallen less,” he added.
The share-swap ratio announced on Wednesday may have been the reason for the drop in shares, analysts said, adding that some investors may be cashing out, now that the restructuring uncertainties are over.
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“The restructuring may generate negative sentiment, since the market had been expecting a favourable share swap,” said an analyst with a Mumbai-based brokerage, who did not want to be identified.
According to the share swap plan, TV18 shareholders will get 68 shares of IBN18 and 13 shares of Network18 for every 100 held while Infomedia18 shareholders will get 14 additional shares of Network18.
The share swap ratio is at a nearly 4 per cent discount for existing investors of TV18 and neutral to shareholders in other group firms.
Most analysts, however, were in favour of the Network 18 restructuring. Elara Capital said in a note that the new Network18 would gain from the restructuring process.
“We feel that the value ascribed to the news channels of TV18 works out to be 74 per cent of the current market cap of the company, which is very high and implies that the valuers assigned very low value to other assets of TV18, which include Web18, Newswire18, TV18’s 21 per cent stake in IBN18 and Capital18. We believe that now that these assets are getting transferred to Network18 at a very low valuation, Network18 stands to benefit from the proposed restructuring exercise, whereas the IBN18 shareholders may pay up a higher price for TV18’s news channels.”
Edelweiss Research said in a note that it sees the restructuring as a positive development. “This will simplify the structure, remove cross holding, provide synergy benefits in terms of ads and subscription and will result in two focussed entities,” it said.