MUMBAI: Entertainment Network (India) Ltd has agreed to sell its out-of-home (OOH) subsidiary to parent company Bennett, Coleman & Co Ltd (BCCL) at valuations that has visibly upset investors.
ENIL, which holds 83.44 per cent in Times Innovative Media (TIM), is selling its stake for a cash consideration of Rs 450 million.
The total deal, which includes debt, values TIM at Rs 1.1 billion. This is way below the price tag of Rs 12 billion that Goldman Sachs and Lehman Bros. had attached in 2008 when they acquired 16.56 per cent stake in TIM for Rs 2 billion.
The current deal with BCCL works something like this: BCCL agrees to repay ENIL‘s loan to TIM and also absorb the obligations under the financial guarantees provided by it on behalf of the OOH company. As on 8 July, the loans advanced by ENIL to TIM and the financial guarantee obligations of ENIL on account of TIM were Rs 425 million and Rs 312.3 million respectively.
Explains ENIL CEO Prashant Panday, "The total valuation of TIM stands at Rs 1.1 billion. For our 83.44 per cent stake, we get a direct cash Rs 450 million from BCCL, while the debt of Rs 560 million of the OOH business will also be borne by BCCL. So we will get Rs 1.01 billion cash on our books."
Shares of ENIL plunged 15.55 per cent to close Friday at Rs 198.25 on BSE. Several broking firms that Indiantelevision.com spoke to said OOH was a high-growth area and the valuation arrived at for the transfer to the parent company was unjustifiably low.
Panday offered a different view to the whole issue of valuations."The OOH business is strongly dependent on the contracts that you have. Two-thirds of the revenue of our OOH business is coming from the Delhi and Mumbai airport contracts, of which Mumbai contract is going to expire on 26 July. Delhi is now with a joint venture. We do not know what‘s going to happen, and thus, it makes sense for us to focus on our core business," he explained.
Panday, however, agreed that the investors were deeply dissatisfied. "I am not unduly worried about the stock price. We will explain to them how the move is beneficial for ENIL," he said.
ENIL reported a consolidated net loss of Rs 153.2 million for the fiscal ended March 2010 as against a loss of Rs 602.9 in FY09. Consolidated net income dipped marginally to Rs 4228.2 million, as compared to Rs 4270.9 million in the year-ago period.
Now with the surplus cash, Panday is looking forward for phase III to arrive. "We are going to keep this Rs 1.01 billion aside for investing in Phase III," he said.
In FY‘10, TIM‘s net loss stood at Rs 325.4 million on an income of Rs 1.56 billion. Expenses stood at Rs 1.71 billion.
ENIL had engaged Morgan Stanley to advise on the transaction.
