Mumbai-based media and entertainment company UTV Software Communications Ltd, which announced a fresh sale of shares to Walt Disney Co. on Monday, will form a separate company to house its business news venture, the company’s managing director Ronnie Screwvala said.
UTV Software is likely to have a 20% stake in the new company, UTV News Ltd, with Screwvala holding the remaining 80%. Screwavala added that UTV was talking to two foreign media companies for a content partnership for the channel which will be launched before the end of March.
The deal announced by UTV and Disney on Monday is one of the largest deals in the Indian media space. Under this, Walt Disney Co. (Southeast Asia) Pte Ltd will invest, subject to regulatory and shareholder approvals, around Rs924 crore to acquire an 18.4% stake in UTV Software Communications, taking its overall stake in the company to 32.1%, and 15% in the diversified media company’s broadcasting subsidiary, UTV Global Broadcasting Ltd.
The deal involves the issue of new shares by the company to Disney. Subsequently, Disney will make an open offer for up to 20% of public holding in UTV in keeping with Indian laws.
Landmark deal: UTV managing director Ronnie Screwvala. (AP)
However, according to an agreement between Disney and the promoters of UTV, the former’s voting rights will be effectively capped at 32.1% for the next four years.
UTV has interests in film production, broadcasting, television content, gaming and animation, and is promoted by Screwvala, who owns a 30.67% stake in the firm.
“It’s a landmark deal and a great endorsement for our company. Clearly, it’s a long-term association. In November 2006, Disney paid $14.5 million (around Rs65.54 crore then) for a 14% stake and now they are paying $203 million (Rs805.91 crore) for another 18%...,” Screwvala said.
Screwvala himself will invest $98 million to increase his holding in the firm to 32.1%.
Disney is present in India through ESPN Star Sports, an equal-stakes joint venture with Star India Pvt Ltd. Star also distributes Disney’s channels in India.
“We are pleased with our initial investment in UTV, which has strong local brands and media properties that provide complementary growth platforms to Disney’s existing branded efforts. The UTV management team is proven and well-respected and we look forward to continue to work with them,” Andy Bird, chairman, Walt Disney International, said in a statement.
Disney also entered into an exclusive agreement with Yash Raj Films in June 2007 to produce animation films. UTV also has interests in animation.
“Our partnerships will be natural. There is no compulsion on either side. Obviously we’ll do things together, but we don’t have to,” Screwvala said. DSP Merrill Lynch Ltd advised UTV on the deal while Goldman Sachs (India) Securities Pvt. Ltd was Disney’s adviser.
The UTV stock has almost tripled in value in the past year. An equity analyst with a leading domestic brokerage said he was positive on the stock’s prospects in the long term.
“The price is likely to stay range-bound. Earning per share will be depressed for a while because of the dilution (the issue of fresh equity), but it’s essentially a long-term game. We need to take into account Disney’s plans in the venture. They seem to be treating this as an entry point to the whole Asian market but there is not enough clarity at the moment,” added the analyst, who did not wish to be identified. He has a “hold” recommendation on the stock.
On Monday, shares of UTV closed at Rs828.25 each, down 3.97% from their previous close on the Bombay Stock Exchange. The exchange’s benchmark, Sensex, closed at 18,048.05 points, down 0.4%.