Kevin Mayer, a former Disney executive brought back in July by chief executive Bob Iger as an adviser to help him navigate the company’s legacy television business and the ESPN sports network and Manoj Modi, a close confidante of Ambani, were among those present in the meeting. Both have been negotiating for months now to finalise the term sheet document.
Following last week’s signing confirmatory due diligence, a valuation exercise by independent valuers will officially begin and legal and tax advisors will be brought on board. There is likely to be a 45-60 day exclusivity period that can be mutually extended.
The development comes even as the fate of the $10 billion merger between Zee Entertainment Enterprises and Sony Group Corp.’s local unit, the biggest in India media amalgamation announced till date – hangs in balance even after two years.
ET was the first to report about the proposed RIL-Disney term sheet in its December 12 edition.
A Disney India spokesperson declined to comment. Mails sent to Reliance on Saturday evening did not generate a comment till press time Sunday.
The plan, as of now, is to create a step-down subsidiary of RIL’s Viacom18, which will absorb Star India via a stock swap, said the people cited above. Reliance is pitching to be the larger shareholder with at least 51% in the merged company with Disney owning the residual 49%, they said. Both businesses are being treated as similar-sized ones, so RIL is likely to pay cash for the controlling stake. Jio Cinema, a part of Viacom 18 will also be included in the deal.
The two sides are also negotiating a business plan to inject cash as immediate capital investment, expected to be $1-1.5 billion. The final shareholding structure of the entity will get crystallised and its value established based on the cash infusion from each of the parties. In the line of fire from activist shareholder Nelson Peltz for poor succession planning, Disney appointed two new directors – Morgan Stanley CEO James Gormon and former group chief executive at Sky Sir Jeremy Darroch, late November. In the same month, Walt Disney CEO Iger said on an earnings call in November that the company was “considering options” but that it would like to stay on in India and try and “strengthen our hand, improve the bottom line”.
That statement highlighted a clear intent of staying on in India. This is Disney’s third coming in India. The first in 1993 was through an alliance with KK Modi’s Group. It went south. Then in bought into Ronnie Scewvala’s UTV but that too did not go as per script and finally in 2018 when Rupert Murdoch sold his entertainment business to Disney globally for $71.3 billion Star India was billed as the “crown jewel.”
“Therefore cashing out yet again was not a priority for Bob Iger (Disney CEO). A partnership was that would also help him deconsolidate his global balance sheet.”
The board is expected to have equal representation from Reliance and Disney of at least two directors each. Uday Shankar-led Bodhi Tree, the second largest shareholder in Viacom18 after Reliance with a 15.97% stake, is likely to get a seat. A minimum of two independent directors are being considered. This may change in the weeks ahead, said the people cited above.
Investor enthusiasm for Disney’s India business started depleting in 2022 after the company lost the online rights to stream the popular IPL tournament from 2023-2027 even as it successfully won broadcast TV rights. The streaming rights went to JioCinema — a joint venture between Ambani’s Reliance Industries and Viacom18 — following a record $6.2bn auction.
While Viacom18 shelled out Rs 23,758 crore ($2.89 billion at Rs 82/dollar exchange rate) for five years and offered free streaming in 2023, Disney Star had to shell out Rs 23,575 crore ($2.87 billion) for the same period for TV rights. This was the first time a digital bid trumped legacy linear TV rights.
Back of the envelope calculations value the Disney Star India business at $5.5-$6.5 billion.
Viacom18, which also has TV18 and Paramount as shareholders, saw its FY23 net profit slump 98% to Rs 11 crore while revenue from operations rose 10% to Rs 4,554 crore. The company’s expenses increased 33% to Rs 4,586 crore. In H1 FY24, Reliance ‘s entertainment business primarily comprising Viacom18 reported a 97% growth in revenue at Rs 4,277 crore on the back of IPL and other sports properties. As of September 30, TV network’s share increased by 50 bps to 10.5%, driven by the performance of Sports and Movies channels. As of September 30, JioCinema was the top broadcaster-OTT app in the country with an average of 210 million Monthly Active Users as per the data from Data.ai.
Walt Disney-owned Star India’s consolidated net profit for FY23 dropped 31% to Rs 1,272 crore from the previous fiscal year, according to its filing with the Registrar of Companies (RoC). Novi Digital Entertainment, the subsidiary that owns Disney+ Hotstar, has seen its net loss more than double to Rs 748 crore, while revenue rose 35% to Rs 4,341 crore. Novi is in the process of merging with its parent company, Star, which holds a 78.07% stake in it.
