Bharti Airtel, Warburg Pincus and Singapore Telecommunications are in initial talks with Zee Founder Subhash Chandra to buy over 61% stake in Dish TV. This will be followed by an open offer for 26% more, as the Sunil Mittal-led telco tries to bolster its digital TV and home broadband play to fight Jio, people familiar with the matter said.
Thereafter, Bharti Airtel’s digital TV business, housed under Bharti Telemedia, is likely to be hived off and combined with the listed Dish TV through a reverse merger, the people said.
If the deal happens, it will offer much-needed liquidity to the Zee Group promoters, who have pledged 82.05% of their holding in Dish TV and 59% of their stake in Zee Entertainment to lenders. Subhash Chandra is also in talks to sell a substantial stake in Zee Entertainment. The Essel Group’s total debt stands at Rs 17,174 crore, which includes debt of private unlisted companies as well as the listed ones.
“The negotiations (for Dish TV) are around the valuations, with an expected offer at over Rs 50 a share for the promoter stake,” said one of the people mentioned earlier. “Due diligence is on, and the deal is expected to be completed in two months.”
At Rs 50 a share for the 87% stake, including the open offer, the effective payout for the consortium could be roughly $1.15 billion (nearly Rs 8,000 crore).
CONSORTIUM WILL HAVE TO TAKE ON DISH TV’S DEBT
In addition, the Singtel-Bharti Airtel-Warburg Pincus consortium would need to take on Dish TV’s debt, which stood at Rs 3,154 crore (around $451 million) as on March 31, 2018. However,SBICap Securities estimates the debt to have increased to $600 million by December end.
Shares of Dish TV India closed at Rs 37.45, down just over 1%, on the BSE on Wednesday, giving it a market capitalisation of Rs 6,895.50 crore. The Airtel scrip ended 3.3% lower at Rs 340.05.
The shareholding of the three-member consortium in the final merged entity will be more than the maximum 75% promoter stake permitted in a listed company, and the entity will have one year to reduce this holding to the permissible limit.
In response to the queries, Bharti Airtel and Singtel said they don’t comment on rumours and speculation. Warburg Pincus and Dish TV had not replied as of press time.
Bulk of the investments are likely to be made by Singtel and Warburg Pincus to prevent any serious drag on Bharti Airtel’s debt-heavy balance sheet, one of the people said. But Airtel is still likely to end up with a sizeable holding in the merged entity by virtue of its 80% stake in Bharti Telemedia, in which Warburg Pincus holds the balance 20%.
The deal would be Airtel’s reply to rival Jio’s attempts at bolstering its digital TV services and home broadband offerings by buying Hathway Cable & Datacom and DEN Networks. Both companies are trying to hook consumers with a triple play of mobile phones, TV distribution and home broadband.
If the Airtel-Dish TV deal fructifies, the combined entity will be the world’s largest TV distribution company with over 38 million subscribers and 61% share of India’s DTH market. In comparison, Jio, after acquiring majority stakes in Hathway and DEN, controls 24 million cable-connected homes of these two companies across 750 cities. This is around 35% of India’s estimated cable industry base of 70 million.
Analysts said since Bharti’s DTH business is urban-centric, it is particularly vulnerable to churn as Jio is widely expected to target metros and 80-to-100-odd top tier-I and II markets once it launches fibre-based superfast home broadband services.
Rajiv Sharma, co-head of research at SBICap Securities, pegs the “equity valuation of the Dish TV-Bharti Telemedia combined entity at roughly $3.5 billion” and believes there is a strong strategic rationale for Bharti to buy Dish TV.
“A potential merger with Dish would allow Bharti to remain a large player in the digital TV market and optimally hedge its risks, in that, even if it loses subscribers in the urban markets to Jio, it could reduce overall vulnerabilities with Dish TV in the bag as the latter has a high rural sub-base,” Sharma told.