Strategic Merger, RIL And Disney Ready Term Sheet, Set To Transform India’s Media Sector

Reliance Industries Ltd (RIL) and Walt Disney Co. are in the process of finalizing the terms for a non-binding agreement to merge their respective media and entertainment operations in India, according to sources familiar with the matter.

If successfully executed, this merger is poised to establish the Mukesh Ambani-led group as the majority stakeholder in India’s largest media and entertainment conglomerate.

The current strategy involves the creation of a subsidiary under RIL’s Viacom18, which will incorporate Star India through a stock swap, insiders revealed.
Reliance is aiming for a controlling interest of at least 51% in the combined entity, with Disney holding the remaining 49%. Both entities are regarded as comparable in size, and as a result, RIL is anticipated to make a cash payment for the controlling share.

Additionally, discussions are underway to formulate a business plan that involves an immediate capital injection of approximately $1-1.5 billion.

The definitive shareholding structure and valuation of the merged company will be determined based on the financial contributions from each party.

The board composition is expected to feature equal representation from Reliance and Disney, with a minimum of two directors each.

Bodhi Tree, led by Uday Shankar and currently the second-largest shareholder in Viacom18 with a 15.97% stake, is likely to secure a board seat; including at least two independent directors is also under consideration, though this aspect may evolve in the coming weeks, as per sources.

Key participants from Disney, including Justin Warbrooke, CFO of the direct-to-consumer business and international head of business operations, and Kevin Mayer, a former Disney executive serving as an adviser, are actively engaged in the discussions.

K Madhavan, Disney’s India head, is also involved, along with The Raine Group, providing advisory services; notably, Warbrooke recently visited India as part of the ongoing negotiations.

Manoj Modi, the key adviser to Mukesh Ambani, is leading negotiations on behalf of Reliance Industries Ltd (RIL) with the group’s M&A team.

Critical meetings are anticipated between the two parties before finalizing and signing the term sheet, following which an expedited timeline is expected for announcing the merger, possibly by the end of January, according to insiders.

After the term sheet is agreed upon and confirmatory due diligence is conducted, the official valuation process will commence with independent valuers.

The merger is characterized as an equity-based transaction, not an acquisition, with both sides contributing equity rather than one party acquiring the other outright for cash; the junior shareholder is also expected to retain certain rights.

The U.S. company is expected to grant the joint venture a five-year exclusive license for subscription video-on-demand (SVOD) content, encompassing Disney+ originals and its library content.

A five-year lock-in period, with exceptions for an IPO of the merged company, is likely to be established. Distribution channels and access to Jio Platforms will also be made available to the joint venture under mutually agreed terms; a list of prohibited engagements with competitors will also be drafted.

Upon signing the term sheet, a 45-60 day exclusivity period, extendable by mutual agreement, is expected.

Walt Disney CEO Iger mentioned in a November earnings call that the company was exploring options in India and expressed a desire to strengthen its presence in the market.

U.S. media sector analysts at Barclays suggest that partnering with other companies, particularly in transactions involving Star India, could yield synergies and improve the business’s financial performance.

Viacom18, which counts TV18 and Paramount among its shareholders, reported a significant drop in FY23 net profit to Rs 11 crore, despite a 10% increase in revenue to Rs 4,554 crore.

Meanwhile, Walt Disney-owned Star India reported a 31% decline in consolidated net profit for FY23, reaching Rs 1,272 crore.

Novi Digital Entertainment, the subsidiary that owns Disney+ Hotstar, saw its net loss more than double to Rs 748 crore, even as revenue rose by 35% to Rs 4,341 crore. Novi is currently in the process of merging with its parent company, Star, which holds a 78.07% stake in it.

The Last Bit, As the ink dries on the non-binding term sheet, the collaboration between Reliance Industries Ltd and Walt Disney Co. stands poised to unleash a new era in India’s media and entertainment sphere.

The proposed merger, driven by strategic equity placements rather than a conventional acquisition, hints at a dynamic partnership where both entities wield significant influence.

With exclusive licensing agreements, a five-year lock-in period, and access to extensive distribution channels, the joint venture is set to command a formidable presence.

As stakeholders anticipate an official announcement, the impending merger represents not only a convergence of media giants but a strategic alliance that could redefine entertainment in the world’s second-most populous country.