The rights issue bound TV18 Broadcast has added a new ‘risk factor’ in its letter of offer filed with the regulators. Tv18 is planning to raise some Rs 2,700 crore by issuing close to 1.35 billion shares at Rs 18 each. The issue opens on September 25.
The company is planning to use Rs 1,925 crore out of these rights issue proceeds to finance the acquisition of some channels of ETV.
In a newly added risk factor, TV18 has indicated that there is “no assurance” that this valuation is “accurate.” The company said in the letter of offer that “the valuation of ETV Companies, which have undergone significant restructuring in past five years is based on financial information derived from the unaudited balance sheet of ETV companies, as on September 30, 2011 (being the last available balance sheet as on the date of completion of the valuation) and on the projections of the business provided to it by the managements of TV18 and ETV Companies.”
A similar risk factor has been added by Network 18 Media and investments, which is also raising Rs 2,700 crore through rights issue of around 900 million shares.
These risk factors did not figure in the draft offer document filed by the two firms in March. A Tv18 spokesperson declined comment on the Sebi review process or whether these disclosures were added on the regulator’s insistence. “ We cannot comment on regulator comments during the review process. However, from a disclosure perspective and to comply with applicable SEBI regulations, it is the Company's obligation to inform the investors of possible risks in relation to investing in the rights issues and the accompanying transactions and to ensure that the investors make an informed investment decision,” the spokesperson said in an email response.
The company added in the letter of offer that the above valuation was based on an estimate by global advisory firm Ernst & Young. In connection with the ETV Acquisition, we and Network18 have entered into the SPA with Equator and Arimas, pursuant to which, Arimas shall sell and transfer, the Equator Securities to us, for an aggregate consideration of Rs 19,250 million, as adjusted for the net debt (“Net Debt”).”
Equator in turn holds 99.96% in Panorama which owns ETV News Channels, 49.98% in Prism which owns ETV Non Telugu Channels and 24.50% in Eenadu which owns ETV Telugu Channels.
To arrive at this valuation, the little known companies have been valued at Rs 4,67.6 crore, Rs 1881.2 crore and Rs 2076.8 crore, respectively.
The company said “the value of investment of Equator in Eenadu, Prism and Panorama is Rs 19,250 million less Net Debt, based on the valuation of the ETV Companies by Ernst & Young.”
However, it added in the risk factor that there can be no assurance that the valuation by Ernst & Young represents an accurate valuation of the ETV Companies. “And we cannot provide any assurance that our investment in the ETV Companies will be beneficial to the Company and /or our Equity Shareholders and provide returns on a continuous basis
Public issue bound companies are required to disclose all the business and systemic risks faced by the company to the potential investors.
While the risk factors said the ETV acquisition was approved by the company’s management on the basis of valuation given by E&Y, the advisory in turn says it relied on the projections by the management on synergies since it did not have the requisite “technical expertise.”
“The management of TV18 informed Ernst & Young of the synergy benefits of the combined entity after the ETV Acquisition in subscription revenues, advertisement revenues and savings in carriage/placement charges paid. Ernst & Young have discussed the aforesaid synergies with the management of ETV and their view was in line with the assumptions considered for the aforesaid synergies. In this connection, Ernst & Young have stated that they do not have the technical knowledge/expertise to validate the assumptions relating to the synergy benefits. Ernst & Young have also stated that their valuation analysis is based solely on various financial information provided by the management of TV18 and ETV Companies without verifying the original documents.”
The risk factor further said there can be “no assurance that the valuation by Ernst & Young represents an accurate valuation of the ETV Companies and we cannot provide any assurance that our investment in the ETV Companies will be beneficial to the Company and /or our Equity Shareholders and provide returns on a continuous basis.”
Valuation RISK
* TV18 to pay Rs 1,925 crore to buy Equator
* Equator holds 99.96 % in Panorama, 49.98 % in Prism and 24.5 % in Eenadu
* Panorama, which holds regional news channels, valued at Rs 4,67.6 crore
* Prism, which owns per cent in non-telugu GECs, valued at Rs 1,881.2 crore
* Eenadu, which owns telugu channels, valued at Rs 2,076.8 crore
* Valation based on Ernst & Young, but company says no assurance of accuracy
