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Home >Markets >Mark To Market >Reliance opts for control in Den and Hathway, instead of full ownership

Shares of Den Networks Ltd and Hathway Cable & Datacom Ltd fell 5-10% on Friday on the National Stock Exchange. This is on a day when the broader markets were in the positive territory with the Nifty 50 index rising by more than 1%.

The promoters of the company are offloading stakes in these companies via an offer for sale (OFS) to meet Sebi’s minimum public shareholding norms. The OFS floor price has been set lower than Thursday’s closing share prices of Den and Hathway, which is creating a downward pressure on the shares. Also, the sale will increase supply of the shares materially. While some minority shareholders may have hoped for a buyout by the promoters given their already high stake, the promoters are instead lowering their stake.

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Reliance Industries Ltd (RIL) holds majority stakes in both the companies. Post the open offers in 2019, BSE data shows, RIL held nearly 78% stake in Den and 72% in Hathway. One reason why these assets were bought was to speed up the commercial launch of Jio GigaFiber. RIL purchased Den and Hathway shares at 72.66 and 32.35 per share in 2019, respectively. RIL is now selling a part of its stake at 48.50 and 25.25 per share, respectively.

No great excitement
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No great excitement

Now, it is well known that RIL is sitting on ample cash and it can very well buy out the remaining stake in these companies. For perspective: As on 31 December, RIL’s cash and cash equivalents stood at 220524 crore. At the time of writing this story, Den’s and Hathway’s market capitalisation stood at around 2460 crore and 4560 crore, respectively. In other words, for RIL, purchasing the remaining stakes in these companies may well amount to loose change.

Even so, analysts maintain, buying out these firms completely won’t help RIL. As an analyst from a multination brokerage firm points out, “One, Jio anyway has control with 51%. Buying everything means delisting - where minorities benefit and Jio has to forgo more cash. Not much upside for that investment." As things stand, RIL can control these companies now anyway without having to make full investments. To be sure, the former promoters still hold a small stake in both the firms. Taking the companies private would entail buying out their stake as well, increasing the cost for RIL.

Meanwhile, for RIL, the overall media business occupies a really small spot in the overall pie. Based on BofA Securities’ sum-of-parts valuations for RIL, the media business forms just about 2% of the latter’s aggregate enterprise value. As such, the media segment does not move the needle in a big way for the RIL stock, which has sharply under-performed the Nifty 100 index in the past six months. According to BofA this underperformance is mainly on the back of muted net adds at telco business, Covid impacting oils to chemicals (O2C) & retail business and limited clarity on digital revenue uptake.

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