EY was engaged by Viacom18, a Reliance Industries (RIL)-backed company, to do the valuation process prior to the signing of the merger deal, while BDO was hired by Star India, owned by Walt Disney.
On February 28, RIL and Disney signed a deal to merge Star India and Viacom18, creating an entity valued at ₹70,352 crore, including a ₹11,500 crore fund infusion by RIL.
Both firms conducted the valuation exercise using the comparable companies multiples (CCM) method, which determines value based on multiples generated from valuations of comparable companies.
According to BDO’s valuation, Star’s entertainment business was valued at a revenue multiple of 1.75 times (₹15,999 crore), while the digital business (Disney+ Hotstar) was valued at a revenue multiple of 3.81 times (₹16,040 crore). BDO assessed Star India’s valuation by examining its trailing twelve months (TTM) revenue until December 31, 2023, which included ₹9,142.2 crore from linear entertainment and ₹4,210.6 crore from digital revenue.
Based on the revenue multiples, BDO arrived at an enterprise value of ₹31,992.9 crore for Star India. After adjusting for liabilities related to the sports business, the equity value was reduced to ₹25,900.2 crore, or ₹524.5 per share.”This transaction reaffirms that digital businesses command valuations twice as high as traditional businesses, thanks to their flexibility and broader scope in distribution and revenue generation,” said media expert Rajesh Sethi.
He said the valuation of sports content is also poised for reassessment as the industry transitions from a three-player landscape to a two-player competition. Media Partners Asia has forecast that the video entertainment industry will reach a value of $13 billion by 2028, with over the top (OTT) platforms contributing half of the new revenue growth.
In the case of Viacom18, the valuation firm provided a consolidated revenue multiple for both linear TV and streaming businesses.
BDO estimated an enterprise value of ₹15,622 crore for Viacom18, based on a revenue multiple of 2.6 times and revenue of ₹6,012.5 crore for the TTM ending December 2023.
Viacom18’s equity value surged to ₹32,937 crore after adjusting for cash balance, investments, intangible assets under development and surplus assets. In April 2023, Reliance and Bodhi Tree Systems invested ₹15,145 crore in Viacom 18.
Under the scheme of arrangement submitted by Viacom18 and Star India to the National Company Law Tribunal, Viacom18 will transfer JioCinema to its subsidiary Digital18 on a slump sale basis for a consideration of ₹24,186 crore.
For the transfer of Viacom18’s other media operations to Digital18, the consideration will be ₹2,769 crore. Digital18 will subsequently transfer these assets to Star India.
EY arrived at a valuation of ₹32,955 crore for Viacom18 and ₹25,926 crore for Star India. Star India’s valuation was conducted on a debt-free basis as it is unlikely to have any cash.
Based on its valuation report and RIL’s ₹11,500 crore fund infusion, EY suggested Star India’s shareholding to be 46.8% (Viacom 18), 36.8% (Star India) and 16.3% (RIL).
As per the merger agreement, RIL will have an effective 56% controlling interest in the Star-Viacom18 combined entity, followed by Walt Disney with a 37% stake. Bodhi Tree Systems, a company promoted by James Murdoch and Uday Shankar, will own a 7% stake in the proposed merged entity.
