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Reliance Industries Limited’s (RIL) acquisition of Network 18 Media & Investments and its subsidiary, TV18 Broadcast is positive for the two companies in the long run. But, given the lower open offer price, experts say, investors with a short-term perspective could sell the shares in the open market instead of tendering the in the open offer.
RIL is acquiring controlling stake in TV18’s parent company, Network18, for Rs 4,000 crore via Independent Media Trust (IMT), of which RIL is a sole beneficiary. IMT would acquire 78 per cent and nine per cent stake in Network18 and TV18, respectively, following which it will make open offers to the public. The open offer is for 446.5 million shares (26 per cent shareholding) of TV18 at Rs 30.18 apiece and 230 million shares (22 per cent stake) of Network18 at Rs 41.04 apiece. This is 14 per cent and 24 per cent lower than their respective closing price of Rs 35.15 and Rs 54.15, as on Friday.
Analysts say the offer price values TV18 at 14.4 times FY16 estimated Enterprise Value/Ebitda (earnings before income tax, depreciation and amortisation), which is fair. However, given that the market price is higher, most experts believe investors are better off selling TV18’s shares in secondary market.
S P Tulsian, CEO, sptulsian.com, says, “Open offer is a statutory compliance activity. I believe nobody will tender the shares, given the low price. We do not foresee any possibility of the price being revised up.”
Abhishek Jain, head of research, JHP Securities, says, “I think investors should sell the stock in the secondary market instead of waiting for open offer, as offer price is lower than market price. I believe, the stock is good buy around Rs 26-27 levels and offer price is likely to arrest major fall in the stock.”
TV18 has been performing consistently in terms of operational and financial performance. Analysts believe the deal is good for TV18’s growth prospects. Network18, which holds about 53 per cent stake in TV18, also owns a suite of digital internet properties and e-commerce businesses.
However, TV18 has witnessed continued high level exits, including in the past three days, which is a near-term concern. “The change in ownership would not have any financial impact on the company. However, top level exits, including the founder, group CEO and CFO, might impact the operational performance of the company,” says Karan Mittal, analyst at ICICI Securities. News reports though suggest that RIL has already hired senior media professionals who could put in place the new management’s strategy. For RIL, the buyout will support its consumer-facing businesses such as 4G, IPL team, retail, etc; believe analysts.
Operationally, TV18 has put up a good show in the March 2014 quarter. The company’s advertising and subscription revenues growth was in line with that in recent quarters. Consolidation of ETV Financials provided further impetus to its performance. The company posted net sales and profit of Rs 20,36 crore (up 21.9 per cent) and Rs 97 crore (versus net loss of Rs 25 crore) in FY14.
On the other hand, Network18 posted consolidated total income of Rs 2,834 crore (up seven per cent year-on-year) and net profit of Rs 28.4 crore (versus loss of Rs 198 crore) for FY14.
