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Reliance acquisition of Network 18

Brief History
SGA Finance & Management Services Private Limited
was founded by Raghav Bahal in 16 February 1996
In 2006, it was converted to a public limited company.
The name of the company was changed from to
Network 18 Fincap Private Limited with effect from 12
April 2006.
Network 18 got listed on the Bombay Stock Exchange
and the National Stock Exchange on 2 February 2007.
The shares of the company of face value of Rs 5 each
opened at Rs 312.10 at the NSE and at Rs 300 at the
BSE

Debt issues of Network 18


In late 2011, Raghav Bahl had his back to the wall. With a consolidated debt of
almost Rs.1,400 crore on its books
By 30 September 2011, Network18 had widened its consolidated net loss to
Rs.70.26 crore from Rs.64 crore in the previous quarter
It borrowings worth nearly Rs.2,400 crore. Operating cash flow was a negative
Rs.249 crore and free cash flow stood at a negative Rs.335 crore
The companys cash cow, its news television business, was under pressure
thanks to the prolonged economic downturn, advertising revenue had dried up
Interest costs were already too high and with the companys net worth almost
eroded, banks werent willing to lend anymore.

The first move


In January 2012, RIL made an investment in Network18s
promoter group companies through a newly created vehicle
called Independent Media Trust.
The promoters, led by Bahl, used funds received from the
trust to infuse cash into Network18 and its subsidiary TV18
Broadcast Ltd, apart from buying RILs stake in the ETV
channels
RILs investment was made in the form of zero coupon
optionally convertible debentures in Network18s promoter
group companies controlled by Bahl

The debentures can be converted into shares at any time within a


10-year period since its issuance, and its conversion will result in
an ownership of over 99.9% by RIL in these entities, according to
an order by the Competition Commission of India.
Network18 and TV18 together raised a net Rs.4000 crore through
rights issues in financial year 2012-13. Most of these funds came
from RIL, since a large part of the issue was unsubscribed.
The trust funded Bahl and related entities to buy their share of the
rights issues, and additionally provided funds to buy rights shares
that were unsubscribed by other investors.

Promoter holding in Network18 rose from 48.3% to 73% after the


rights issue
Entities that are reportedly related to RIL/Mukesh Ambani such as
Shinano Retail Pvt. Ltd and Nexg Ventures India Pvt. Ltd picked up a
stake of about 10% in Network18 post the rights issue.
By January 2012, RIL had made investments worth Rs.2,600 crore in
ETV channels and company owned a 50% stake in ETVs Telegu
channels and a 100% stake in all its other channels.
TV18, in turn, paid RIL Rs.2,100 crore for part of the Etv stake, the
conglomerates effective investment works out to Rs.4,500 crore.

The affect on the stock


market
IMT would be making Open Offers to public shareholders for
acquisition of equity shares in NW18, TV 18 and Infomedia Press
Limited
Through this deal IMT will own about 78% in Network 18 and 9% in
TV18
RIL's shares on the BSE closed 1% lower at Rs 1,077.
However, Network18 Media stocks closed 7% higher at Rs 45 while
TV18 Broadcast stock ended 3% higher at Rs 35
About 13.3 lakh shares of Network18 were traded on Thursday
compared to its daily average turnover of 2.4 lakh shares in the last
two weeks

How the deal benefitted RIL


RIL got access to all the digital properties of
the TV18 group include In.com,
IBNLive.com, Moneycontrol.com,
Firstpost.com, Cricketnext.in,
Homeshop18.com, Bookmyshow.com and
broadcast channels like Colors, CNN-IBN,
CNBC- TV18, IBN7 and CNBC Awaaz .
The acquisition will bring in exclusive content
for Reliance's 4G foray Reliance Infotel,
preferential access to Network18's content
for its 4G mobile data services platform

Current performance
Network18s financials have improved considerably since RIL invested
indirectly in the company.
In the year till March 2012, before the investment, the company
reported operating losses worth Rs.270 crore on revenue of Rs.1,952
crore.
Its net debt has now dropped to Rs.786 crore, thanks to which interest
cost has come down from Rs.272 crore in FY12 to Rs.122.5 crore in
FY14.
In the year till March 2014, it turned profitable at the Ebitda (earnings
before interest, tax, depreciation and amortization) level, with a profit
of Rs.87.2 crore on consolidated revenues of Rs.2,692 crore.

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