Mint Explainer: All you need to know about the $8.5-bn Disney-Reliance merger

As part of the deal, Disney will transfer all its India assets and employees — except its 30% stake in DTH company Tata Play, its consumer products business, and VFX studio Industrial Light & Magic — to its wholly owned subsidiary Star India. Photo: Bloomberg
As part of the deal, Disney will transfer all its India assets and employees — except its 30% stake in DTH company Tata Play, its consumer products business, and VFX studio Industrial Light & Magic — to its wholly owned subsidiary Star India. Photo: Bloomberg

Summary

  • As of now, Reliance will effectively control the joint venture. It will own a direct stake of 16.34% in the company, while subsidiary Viacom18 will own 46.82%, and Disney 36.84%.

MUMBAI: After months of speculation, Disney and Reliance announced on Wednesday night that they had decided to merge their entertainment assets in India and create a $8.5 billion (more than 70,000 crore) media behemoth with more than 100 linear TV channels, two large streaming services – Disney+Hotstar and JioCinema – and a massive content library.

As part of the deal, Disney will transfer all its India assets and employees — except its 30% stake in direct-to-home (DTH) company Tata Play, its consumer products business, and VFX studio Industrial Light & Magic (ILM) — to its wholly owned subsidiary Star India.

What are the details of the deal?

Viacom18, a Reliance-controlled entity in which Paramount (earlier ViacomCBS) has a minority stake of around 13%, will merge with Star India to form a 58,852 crore (pre-money) joint venture. Once the deal goes through, Reliance Industries will infuse another 11,500 crore ($1.4 billion) of growth capital into the JV for a 16.34% direct stake, valuing the JV at 70,352 crore.

Viacom18, which posted a revenue of 4,554 crore in FY23, will be valued at 32,937 crore ($3.9 billion) in the JV, while Star India, which reported a revenue of 19,857 crore in the same year, will be valued at 25,915 crore ($3.12 billion) before Reliance’s investment.

Bodhi Tree, a joint venture between Disney APAC CEO Uday Shankar and James Murdoch’s Lupa Systems, owns 15.97% in Viacom18. This will be diluted to around 7.5% once Reliance infuses 11,500 crore in the JV, while Paramount’s stake will be diluted to 6.1%. People with direct knowledge of the deal said Paramount is likely to exit the JV by selling its stake to Reliance.

As of now, Reliance will effectively control the JV. It will have a direct stake of 16.34% in the company, while Viacom18 will have 46.82%. Disney will own 36.84% of the JV. Viacom18 is itself a step-down subsidiary of Reliance Industries. Reliance group entities own over 55% of the company, while TV18 owns 13.54%.

In 2021-22, Disney had internally valued its India business — including Star India, Disney and Disney+Hotstar — at around $5.4 billion. However, this was before the company splurged 23,575 crore on the TV rights of the Indian Premier League and $3.03 billion on ICC cricket rights.

“Nobody would have imagined that they would get Disney’s India business at such a marked-down valuation of $3.12 billion. This is an extremely value-accretive transaction for shareholders of Reliance and TV18. The drop in valuation is because of potential sports-related losses," said a media analyst, who did not wish to be identified.

Will it get the CCI’s approval?

Disney Star has genre-leading channels in Hindi, Marathi, Malayalam, Bengali and Kannada. Many in the industry say that with the merger, the two companies’ combined market share will cross 40% and some markets will see complete dominance and a lack of competition. This may make it difficult for the deal to be approved by the Competition Commission of India (CCI).

However, both Reliance and Disney are hopeful of getting the CCI’s approval, given that the competition watchdog had given its conditional approval for another huge merger in the media and entertainment space — Zee and Sony — after directing the former to divest some channels. The merger collapsed in February.

“There is a precedent with the Zee-Sony approval. Yes, there are a few markets where the combined entity will have dominance, but there is enough competition in the market. The two parties are ready to divest some assets if needed," said a person with knowledge of the deal terms.

The two companies expect regulatory approvals from the CCI and the National Company Law Tribunal (NCLT) within a few months, and the deal to be completed within 9 to 12 months.

Also read: The Reliance-Disney merger is great for them. But will it be for consumers?

Who will be on the board of directors?

Under the agreement, the JV will have 10 directors, including two independents. Four of them will be appointed by Reliance, three by Disney, and one by Bodhi Tree. Nita Ambani will be chairperson of the board, while Shankar will be vice-chairperson.

What’s the background of the deal?

Rumours of a deal between Reliance and Disney had been doing the rounds since Disney CEO Bob Iger announced last year that the company wanted to focus on its core business, and called linear TV non-core. In an interview with CNBC he said that everything was on the table, but later, during an earnings call, he said Disney would like to stay on in India.

The valuation of Disney’s India business represents a major markdown from its peak when Disney acquired it from Rupert Murdoch’s 21st Century Fox as part of a global deal. Disney paid $71.3 billion to pocket the entertainment assets of Fox in 2018, and while it did not break this down by country or region, it was assumed that Star India accounted for around 20% of the business, or around $14 billion, in 2019.

“Disney Star’s collective loss from three properties — the ICC World Cup last year, IPL 2024 and the ICC T20 World Cup 2024 — will be in the range of 6,000-7,000 crore. Even after profits from the entertainment business are taken into account, the company will have 5,000 crore of losses on its books from a single financial year (Disney follows the October-September financial year). So it wants to sell the majority stake in its business before the end of the year," an analyst previously told Mint.

After announcing the signing of the agreement, in a joint internal note to the employees in India, Disney Entertainment co-chairmen Alan Bergman and Dana Walden, and ESPN chairman James Pitaro wrote that India remained a key market for Disney and one of the strongest international growth markets of scale. “...we are committed to ensuring a robust presence there. By entering into a joint venture with RIL, which has a deep understanding of the Indian market and its consumers, we have a great opportunity to develop our offering in India and create long-term value for the company, and today’s announcement represents a meaningful step forward," they wrote. Mint has seen a copy of the internal communication.

“We greatly appreciate the team in India and the tremendous work you do to deliver the highest level of excellence, for which Star India is known. Our goal is to ensure that you are informed and supported in every step of this process, and we will share more details as soon as we are able. In the meantime, we should continue operating in the ordinary course of business and continue focusing on delivering incredible entertainment experiences to our audiences throughout India," they added.

They said merging Star India with Viacom18 would bring together the preeminent global content company with India’s foremost conglomerate and mobile distributor to create India’s leading media and entertainment company, which would better serve consumers and advertisers with its portfolio of sports and entertainment content, and digital services.

Which assets will be included in the JV?

The JV will bring together media assets across entertainment (TV channels such as Colors, Star Plus and Star Gold) and sports (Star Sports and Sports18), besides content streaming platforms JioCinema and Hotstar, that have more than 750 million viewers across India.

It will also have exclusive rights to distribute Disney films and other productions in India, and licence to use more than 30,000 Disney content assets.

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