Disney, Reliance sign pre-deal agreement, mega-merger to be done by Feb

The 51:49 stock-and-cash consolidation in favour of RIL is expected to wrap up by February. Disney and Reliance are also likely to inject cash as capital investment

Walt Disney and Reliance Industries Ltd (RIL) inked a non-binding term sheet in London last week to advance with plans to merge their India-based media operations, according to a report by The Economic Times (ET).

The two sides had discussions recently about a possible joint venture in which RIL would get a majority stake. Consolidation between the two would lead to the creation of one of the country's largest media empires, putting it in contention with players such as Zee Entertainment and Sony and streaming services like Netflix and Amazon Prime.

The 51:49 stock-and-cash consolidation in favour of RIL is expected to wrap up by February.

Among those leading the negotiations were Kevin Mayer, a former Disney executive brought back in July by CEO Bob Iger as an advisor and Mukesh Ambani's key advisor, Manoj Modi. After previous stints at Disney, Mayer had been running Candle, a media group co-founded with Blackstone's backing. Both had been working for months to bring the negotiations to a conclusion.

ET reported that a valuation exercise will officially begin, and legal advisors will start working on the finer details after last week's signing. There is the possibility of a 45-60-day exclusivity period that can be mutually extended.

ET quoted sources saying that plans for a step-down subsidiary of RIL's Viacom18 are being floated to absorb Star India through a stock swap. RIL is likely to pay cash for the majority stake, and both companies are being treated as similar-sized ones. Jio Cinema will also be included in the deal.

The deal could prove advantageous for Disney, whose Hotstar streaming app has been running into losses. In November, Iger said that while Disney's television channels were doing well in India, other parts of the business were accruing losses. The company was "considering options" but would like to stay in India and try to "strengthen our hand, improve the bottom line", he added.

Both firms are also likely to inject cash as capital investment, which is expected to be in the range of $1-1.5 billion.

The report said that the new board is expected to have at least two directors each from Reliance and Disney. Uday Shankar-led Bodhi Tree, the second largest shareholder in Viacom18 after Reliance with a 15.97 per cent stake, is a contender for a seat on the board. The companies are considering a minimum of two independent directors. This could change in the weeks ahead.