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Disney looks to exit Tata Play, offload stake in IPO

Disney inherited the stake in Tata Play when it bought the entertainment business of 21st Century Fox. Photo: AP
Disney inherited the stake in Tata Play when it bought the entertainment business of 21st Century Fox. Photo: AP

Summary

The American entertainment conglomerate seeks to focus on its broadcast and streaming service businesses in India.

Walt Disney Co. plans to sell its entire stake in India’s largest satellite television operator Tata Play Ltd during its proposed initial share sale, as the American entertainment conglomerate seeks to focus on its broadcast and streaming service businesses in India.

On 29 November, the satellite TV operator, formerly called Tata Sky, filed a confidential offer document for the initial public offering with the markets regulator. According to the so-called pre-filing, Disney plans to sell its entire 29.8% stake in Tata Play, two people aware of the development said.

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A clean break

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Tata Play became the first to file a confidential IPO draft after new Sebi guidelines allowed companies to protect sensitive business information, a concept popular with tech companies in the US.

“Disney has decided to sell its stake in Tata Play and offered all its shares in the upcoming IPO," one of the two people cited above said on the condition of anonymity.

“Nowhere in the world is Disney interested in the distribution business. It is a storyteller," he added.

Disney inherited the stake in Tata Play when it acquired the entertainment business of 21st Century Fox from Rupert Murdoch. In 2019, it started internal discussions to exit. However, the IPO plans kept getting deferred.

A spokesperson for Disney Star, the local unit of Walt Disney, declined to comment, while a Tata Play spokesperson did not respond to queries.

Incidentally, the ownership of Tata Sky has been a source of conflict for Disney and India’s regulatory bodies and the broadcasting ministry. India allows 100% foreign direct investment (FDI) in the satellite TV sector but has capped the maximum stake a broadcaster can own in a direct-to-home (DTH) TV operator to 20%.

In 2004, Murdoch-owned Fox formed a joint venture with Tata group, as foreign direct investment in DTH was capped at 20% at that time. While the FDI cap was later removed, the cross-media ownership rule remained in the DTH licensing guidelines, allowing a foreign entity to hold up to 20% stake.

However, in FY10, the government issued a press note defining Indian ownership and control regulations so that if a foreign firm invests through an investment company with Indian ownership, the investment will be considered Indian.

Taking advantage of the regulation, Fox and Tata group formed TS Investments, which acquired 20% of Tata Play, and Fox got an additional 9.8% indirect stake in Tata Play. “The current Indian management under K. Madhavan is of the view that acquiring the stake in Tata Play was a mistake. It was under James Murdoch and Uday Shankar when they wanted to grow aggressively and acquired minority interests in both DTH and a cable firm (Hathway Cable and Datacom). Later, Fox sold its stake in Hathway to the promoters but increased the holding in Tata Play," said the second person.

Though neither the DTH policy nor the press note mentioned the foreign firm could raise stakes in a DTH operator beyond 20%, Fox got approvals from the I&B ministry, and it was never challenged. “Since 2018, the ministry started asking Tata Play to clarify the shareholding. For Disney, a firm very conscious of its ‘functioning by the book’ image, this was a grey area," said the person cited above. Since then, they decided to get out of the JV."

Tata Play is looking at an IPO of 2,500 crore and has hired Kotak Mahindra Capital, Citi, Morgan Stanley, IIFL and Bank of America as bankers, and corporate law firm Cyril Amarchand Mangaldas to advise on the IPO and subsequent listing.

As of 30 June, Tata Play had 22 million paid subscribers. In FY22, the company posted a revenue of 4,741 crore and a net profit of 68.6 crore.

Baytree Investments (Mauritius), a unit of Temasek Capital, acquired 10% of Tata Play in 2008 and is likely to exit, too.

Tata group owns the remaining 60.2% stake in Tata Play.

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