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ZEE TV-STAR TV SPLIT:
THE GORY DETAILS
The deal was completed via a teleconference
between the two media barons Rupert Murdoch and Subhash
Chandra. But the details were thrashed out over the
past three months in court, outside court, and in offices
ensconced with lawyers and managers. Finally, Chandra's
Zee Network and Rupert Murdoch's Star TV announced last
week that the former was buying out the latter's equity
stake in their joint ventures the Hong Kong-based Asia
Today Ltd (ATL), Patco and Siticable. Both of them pronounced
that they felt liberated.
The partnership had been rocky for the
past three years with both of them objecting to each
others' business initiatives to generate further revenues
from the Indian market. The two were discussing a possibility
of merging the Indian operations of Star TV with Zee
Telefilms Ltd (ZTL) in order to create an unrivalled
Indian media conglomerate as recently as in 1998. Talks
failed on the issue of valuation of each others' business.
And a year later the two decided to part ways. As a
result, Zee TV and Star TV will be able to chart their
individual paths in India; Star will have the option
of either folding up or increasing local content and
making a concerted effort to attract audiences to its
hitherto upmarket services. Zee TV will be able to charge
ahead with its direct to operator project and with its
plans to launch English channels.
Chandra will be paying Star approximately
US$296.8 million for its 50% equity stake. 50% of that
will be paid in cash with the remainder being paid for
as shares of ZTL, a company listed on the Mumbai stock
exchange (Monday quote: Rs 5,110). It was announced
that Star TV will end up with a equity stake of 3.88%
in ZTL as the company is expected to double its equity
capital following its merger with Zee Multimedia Worldwide
(ZMW), which looks after the international operations
of Zee TV. A Star TV spokesperson told Reuters that
Star TV would get a 7.5% equity stake in ZTL last week.
The board of directors yesterday agreed
to a 1:1 share swap ratio between ZTL and ZMW. Earlier
Deloitte Haskin & Sells had recommended a share swap
ratio of 1.33 shares of ZTL for every ZMW. This was
later brought down to 1.1:1, and finally to 1:1 yesterday.
The new share swap ratio will result in Chandra and
promoters' equity stake in ZMW coming down to 70% as
against 73% under the earlier ratio. Star TV's stake
in the merged ZTL-ZMW will likely go up to an estimated
4.18% as against 3.88% under the earlier ratio.
The ZTL board also approved splitting
the Rs 10 stock into smaller denominations of Re 1 each,
thus bringing the effective price of the share post
split to around Rs 500, at current prices. Expectations
were that the split would be into shares of a face value
of Rs 2 each. The decision however needs approval of
the shareholders at an extraordinary general meeting
to be held on 25 October. The ZTL management expects
the split to make the ZTL share affordable to many more
lay investors.
ZTL will be divesting a 10% equity stake
in ZTL to strategic international investors. Says Chandra:
"We are not limiting ourselves to one partner only;
we could go for someone with technological skills, distribution
skills, a financial firm with financial and the clout
to do media deals. We are interested in offering them
strategic investment positions in the company."
Local newspapers have been speculating
that the strategic partner could be either Viacom or
Turner. Chandra put to rest the speculation by categorically
stating that neither of these is involved in any equity
talks with ZTL at this stage. ZTL managing director
Vijay Jindal adds: "Lot of foreign companies have expressed
their intention and faith to invest in Zee considering
its net worth and we are open to such investments."
The major task before Chandra is to repay
Murdoch the cash component of the transaction which
has been converted into debt instruments maturing in
two equal tranches dates on 31 March 2000 and 30 September
2000. The debt instruments will be bearing an interest
rate of 150 basis points above Libor. "Our effort will
be to repay Star TV much before the deadline so that
we can save on interest costs," says Chandra. Financial
daily Business Standard reported today that the payment
would be made as early as this Thursday.
With the breaking up of the partnership,
Chandra also has the liberty of uplinking from wherever
he wants. Hitherto he was bound to uplink out of Star
TV's Clearwater Bay earth station in Hong Kong because
of contractual obligations. A senior official said that
ZTL will move its uplink away from Hong Kong to Singapore's
ST Teleport at the earliest as an interim measure and
finally to Noida (outside New Delhi) where its own earth
station is slated to come up. The reason: it can get
lower rates from ST Teleport.
Meanwhile Chandra says ZTL will be launching
two English channels in the coming months. "One will
be a movie channel; the other a general entertainment
channel," he points out.
At the company's 17th AGM held in Mumbai
yesterday, shareholders gave the management the go-ahead
to merge ZMW with it at a cost of US$470 million. Shareholders
also green-signaled the hiving off of its education
division into a separate 100% owned subsidiary. Chandra
announced that Internet related ventures were being
spun off into another subsidiary called E-Connect Ltd.
He emphasised that a push will be given
to cable TV business under Siticable, which has also
come under the ZTL umbrella as part of the settlement
with Star. He evaded a question on whether he would
take the acquisition route.
For Star TV, the deal is likely to come
as a shot in the arm. Around a billion dollars have
been sunk into the Asian operations of the network and
it is still bleeding. While News Corp shareholders have
been patient, there has been some amount of carping
about the network's Asian operations. The approximately
$300 million will provide it with sorely needed funds
and also help mollify miffed shareholders. The $300
million deal means Star TV has got a handsome return
on its $50 million investment in Zee TV over the past
five years.
Senior executives in Star TV India are
busy drawing up business plans which are to be presented
to Star TV Asia chairman Gareth Chang when he visits
India in the next couple of weeks or so.
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