Mumbai: Reliance Communications Ltd (RCom), the mobile telephony arm of the Reliance Anil Dhirubhai Ambani Group (R-Adag), is close to striking a second deal, even as it completes the merger of its hived-off telecom tower business with GTL Infrastructure Ltd.
This time, it is in talks for merging its direct-to-home (DTH) and Internet protocol television (IPTV) businesses with Digicable Network (India) Pvt. Ltd, a leading cable TV distribution company or a multiple system operator (MSO), according to two people with direct knowledge of the development.
One of the two said that following the merger of RCom’s digital television businesses with Digicable, RCom would own a majority stake in the restructured entity. This person added that the deal would be an all-stock one and involve no cash transfer.
Jagjit Singh Kohli, managing director and chief executive officer (CEO) of Digicable declined comment, as did an R-Adag spokesperson.
The second person familiar with the development, an executive at Digicable, said that the promoters of the two companies were discussing a merger, but added that he hasn’t been part of these discussions.
Neither of the two wanted to be identified.
A third person, an executive at a rival of Digicable who asked that neither he nor his firm be identified said that rumours of the talks between the two companies had been doing the rounds for around three months.
It is not clear whether Ashmore Investment Management Ltd, a private equity investor which holds 49% in Digicable, will exit after the merger. Mint could not reach out to Ashmore. Kohli and his associates hold 51% stake in the firm.
Digicable is not a listed entity and its valuation is not known.
Digicable has aggressively grown its subscriber base which is spread across Punjab, Uttar Pradesh, Madhya Pradesh, Rajasthan, Chhattisgarh, West Bengal, Andhra Pradesh and Maharashtra. It claims to have a subscriber base of 8.5 million.
The merger, if it goes through, will help R-Adag fill in a blank in its media and entertainment business. The conglomerate has a significant presence in movie distribution and runs a multiplex chain.
Reliance MediaWorks Ltd, which operates the multiplex chain, is also eyeing a takeover of another mutiplex operator, Fame India Ltd, in which it has a 15.28% stake and is awaiting a nod from the capital market regulator to make an open offer to shareholders of the firm.
Under existing takeover norms, a firm needs to make an open offer for at least a 20% stake in a listed company after it acquires at least 15% in it.
A foothold in all forms of television distribution—DTH, IPTV and cable—would create synergy for the television content broadcasting business that R-Adag plans to enter.
“Tapping into Digicable’s large existing customer base would help Reliance market the new channels it plans to launch better,” said a media analyst at a domestic brokerage who did not want to be named.
Reliance BIG TV and Reliance IPTV are the two RCom units that currently operate DTH and IPTV businesses, respectively. Reliance BIG TV has 2.4 million subscribers and a 12% market share of the DTH industry, according to the firm.
On 21 June, Reliance Broadcasting Network Ltd, previously known as Reliance Media World Ltd, announced that it plans to form a joint venture with CBS Studios International, a subsidiary of the US-based media house, CBS Corp. to launch English and regional language channels in India.
On Sunday, R-Adag announced that it would merge the telecom tower assets of Reliance Infratel Ltd—an RCom unit—with those of GTL Infrastructure in a deal that would involve a cash infusion of around Rs16,000-18,000 crore in RCom and stakes for existing shareholders of RCom and Reliance Infratel in the merged entity.
RCom’s board of directors approved on 6 June a proposal to offload a 26% stake in the company to a strategic investor at a premium to the ruling market price.
“Joining hands with R-Adag would help Digicable gain access to a large optical fibre cable network and new verticals such as IPTV, while RCom would further deleverage its balance sheet by moving all the non-core businesses other than mobile telephony out of the company,” the analyst quoted earlier said.
RCom’s share prices on the Bombay Stock Exchange dropped 3.82% to Rs193.75 on Tuesday, while the bourse’s benchmark Sensex ended the day 1.35% lower at 17,534.09 points.
Digicable managing director and CEO Kohli is a pioneer in the industry who had helped set up WinCable for Hathway Cable?and?Datacom?Ltd, India’s largest MSO. He also founded ETC Networks Ltd which was later acquired by the Essel group. The group appointed him as managing director for its MSO arm—Wire and Wireless (India) Ltd, or WWIL.
Kohli quit WWIL in 2007 and set up Digicable.
A person familiar with Kohli’s work says he is adept at “creating networks” such as Digicable from scratch and has in the past sold businesses when offers are attractive. He has moved out of WinCable and ETC Networks, but the veteran with 30 years’ experience has always re-entered the cable TV industry.