Under the deal, Reliance will put up the money to allow
the controlling shareholder of the TV18 group to subscribe to rights issues in
the two firms, Network18 Media and Investments
Broadcast Ltd.
In return, India's biggest listed company will get
preferential access to content from TV18 group, which will be distributed
through the 4G broadband network it is setting up.
The deal also calls for Reliance to transfer most of its
stake in unlisted regional broadcaster ETV and most of its channels to TV18
Broadcast for Rs.21 billion ($395 million).
Network18 Media and Investments runs business news portal
moneycontrol.com, while TV18 Broadcast operates television channels including
CNBC-TV18 and CNN-IBN.
Reliance, controlled by Mukesh Ambani, Asia's richest
man, did not disclose the size of its investment.
But TV18 said in a separate release that interests
associated with group founder Raghav Bahl would contribute Rs.17 billion ($320
million) to the rights issues.
Bahl will retain management and majority control over
TV18 and Network 18, the statement said.
A trust set up by Reliance will subscribe to convertible
debentures that will be issued by Bahl interests.
CASH RICH
A Reliance spokesman declined to comment on how much of a
stake the company would eventually hold in the issuing entities.
"Reliance is cash-rich and has been looking for new
businesses to put money in. TV18 group has been bleeding money, so getting in
an investor will definitely help them," said K.K. Mital, head of portfolio
management services at Globe Capital.
Reliance shares closed 2.6 percent higher in a strong
Mumbai market. Network18 Media and TV18 Broadcast each rose by 20 percent,
their maximum daily limit.
Reliance has been looking to diversify as growth in its
core oil and gas business slows.
The company, which has also invested in retail and
financial services, made a dramatic return to the telecoms sector in 2010 by
taking control of the only firm that won wireless broadband licenses across
India, and is now preparing to launch services.
Worries about declining output at its gas fields off
India's east coast helped to drag down Reliance's share price by more than 30
percent in 2011, contributing to a near 25 percent fall in India's main stock
index.
The deal with TV18 puts Reliance in direct competition
with several businesses controlled by Mukesh Ambani's younger brother, Anil, at
a time when speculation is rife that the two, who have been bitter rivals, will
again do business together.
Anil Ambani controls Reliance Communications Ltd., which
operates 3G telecom services, while his Reliance Broadcast Network Ltd. and
Reliance Mediaworks Ltd. operate the group's media and entertainment
businesses.
FOCUS ON PROFITABILITY
Network18 and TV18 announced earlier that their boards
had approved a rights issue to raise Rs.40 billion, after adjusting for Network
18's holding in TV18.
The deal with Reliance will allow the TV18 group to focus
on generating profits for its broadcast business, Bahl told analysts in a
conference call.
The acquisition of the ETV channels will also give the
group a nationwide platform of regional channels to take on competitors Star TV
and Zee TV.
"We don't need to increase our footprint now,"
Bahl said. "We are clearly out of investment mode as far as broadcast is
concerned."
The TV18 group, saddled with mounting debt caused by a
slowdown in spending on advertising, is not profitable.
Bahl said the TV18 would provide content to Reliance at
"arm's length pricing" on a non-exclusive basis.
"This gives TV18 group a fresh lease of life,"
said a sector analyst at a foreign brokerage. "This deal also works out
for Reliance as it was stuck in the investment in ETV and they could not have
monetized it better."
TV18 said it would use the proceeds to repay debt, fund
the acquisition of the ETV channels, and for working capital. Network18 said it
would use the funds to repay debt and subscribe to the TV18 rights issue.
