Companies
The big telco looking to buy out Dish TV
Summary
Bharti Airtel and Dish TV have a combined market share of nearly 50% in the direct-to-home, or DTH, space in IndiaMUMBAI/NEW DELHI/BENGALURU : Bharti Airtel Ltd is in early talks to acquire a majority stake in Dish TV India Ltd, according to three people familiar with the matter, a deal that would give India’s second-largest telecom operator control of half of the country’s satellite television business.
Bharti Airtel executives have had discussions with Essel Group founder Subhash Chandra for the transaction, the people said, seeking anonymity.
EY, which Bharti Airtel has hired to inspect Dish TV’s financials, submitted the due diligence report to the telecom company on 25 October, one of the people cited above said.
“The promoters of Airtel and Subhash Chandra are in discussions," said the second executive. “Once Mr. Chandra approves the deal, he will make a recommendation to the chairman (of Dish TV), who, along with the board, will then take an independent opinion."
Bharti Airtel has offered ₹20 a share, a 16% premium to Wednesday’s closing price, to buy the 5.93% stake of Dish TV’s promoter group, the second executive said.
For now, Chandra has not accepted Bharti’s offer, the third executive said, adding that this has prompted Bharti Airtel to wait before reaching out to Yes Bank, the largest shareholder of Dish TV.
A spokesperson for Yes Bank said that it has not had any discussions with Airtel in this regard.
Bharti Airtel will not make a hostile bid for Dish TV, the second executive said, adding that the telecom company will offer to buy the 25.63% shares owned by Yes Bank only after the promoter group accepts Airtel’s offer.
Once the promoters and Yes Bank accept Bharti’s offer, it will offer to buy the remaining shares of Dish TV from other shareholders to own 51% of the company, the executive said. Yes Bank’s support for the deal will be crucial.
“Discussions have been on, but whether this will fructify is difficult to say. There are several complexities involved," said the third executive.
One of the complexities, the person referred to, is that Airtel will have to convince both the promoters of Dish TV and Yes Bank to close this transaction.
Yes Bank is pressing for a board reconstitution at Dish TV, including seeking removal of managing director Jawahar Goel and four others from the six-member board and induction of seven directors.
Another issue will be Dish TV is a listed entity and Airtel DTH is a private entity
Dish TV’s promoters pledged their shares to take loans from Yes Bank between December 2016 and July 2018. Yes Bank invoked the pledge last year after Essel Group stopped servicing the loans.
A spokesman for Dish TV said that the company does not comment on market speculation. An email sent to Bharti Airtel and EY seeking comment went unanswered.
Bharti Airtel’s offer to buy Dish TV, which is facing a revolt from its largest shareholder, somewhat mirrors developments at Subhash Chandra-controlled Zee Entertainment Enterprises Ltd, which is also battling with its largest shareholder, Invesco, a US-based fund manager.
After Invesco pushed for the removal of Zee managing director Punit Goenka and sought for a board reconstitution, Chandra managed to get Japan’s Sony to sign a non-binding merger agreement, under which Sony will own 53%, and the current shareholders of Zee will hold the remaining 47%.
Bharti Airtel’s DTH business reported a revenue of ₹3,056.2 crore, a 5% growth in the year ended 31 March, while Dish TV’s revenue declined 8.6% to ₹3,249.4 crore last year. Ebitda improved 4% to ₹2,078 crore at Airtel while it fell 4.2% to ₹2,017 crore at Dish TV. Unlike Dish TV, Airtel also grew its DTH subscribers by 6.6% in the year ended 31 March to a total of 17.2 million users.
Earlier this year, Airtel bought a 20% stake in its DTH business from private equity firm Warburg Pincus for ₹3,126 crore, which translated into 7.6 times EV/Ebitda or the valuation of a company to its cash earnings less non-cash expenses. It helps measure the cost of acquiring a company.
“If Airtel manages to get this deal inked at ₹20 a share, then it will be a huge bonus for the company because that implies this deal is being structured at 1.5 times EV/Ebitda," said the second person cited above.
Bharti Airtel and Dish TV have a combined market share of nearly 50% in the DTH space in India, with Tata Sky taking the top position with 33.3%.
Separately, Airtel and Dish TV had a 25.54% and 24.09% share, respectively.
