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BW Businessworld

The Second Coming

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Network18’s studios are still reeling from the shock. “We’ve heard hearing rumours in the past, but then nothing happened. We thought this time, it was the same. Then Raghav’s mail came saying he was leaving, and it was a bolt from the blue,” a prominent CNBC anchor said. She was recounting the exit of former Network18 (NW18) chairman Raghav Bahl and the fast-paced events that preceded and followed Reliance Industries’s (RIL) 29 May announcement that it had taken over the company.

RIL’s first release on 3 January 2012 on the decision to invest in the company said: “Mr Raghav Bahl and his team will continue to have full operational and management control of both the companies…. RIL reposes full faith in the current leadership and management team of Network18 and TV18.”

But this situation was short-lived. So, how did the three-part takeover pan out? RIL first announced it was funnelling money into the cash-strapped NW18 through the Independent Media Trust (IMT) by subscribing to zero-coupon, optionally convertible debentures (OCDs) to be issued by NW18 promoters. It also said that Mukesh Ambani had earlier acquired the ETV network from Ramoji Rao for Rs 2,600 crore (considered to be heavily overvalued by many media analysts); and ETV would be bought and merged with NW18. To raise the money, NW18 would do a rights issue largely funded by Ambanis’s IMT for the acquisition.

The rights issue followed in September 2012, raising the shareholding of Bahl and his associates to 72 per cent from 48 per cent. The entire NW18 and TV18 equity was parked and distributed in six holding companies. IMT contributed Rs 2,211 crore and funded the rights issue. The Ambani entity secured itself via the OCDs holding the right to 99.97 per cent on the conversion of Bahl’s 72 per cent equity. Meanwhile, other RIL associates such as Shinano Retail acquired an additional 4.9 per cent of the NW18 equity and IMT picked up 1.85 per cent separately from retail purchases.

In the final round announced on 29 May, IMT will convert these OCDs and acquire 78 per cent holding over NW18 and 9 per cent in TV18, as well as shares in the open offers beginning 21 July. From his exit, Bahl and his associates will gain Rs 1,055 crore for his residue shareholding. A sum of Rs 4,000 crore has been sanctioned for the acquisition and the open offer by RIL. As an analyst put it, “the house and its management were with Bahl; but he was only the caretaker. The keys were always with RIL.”  RIL has now sought to take possession.
Many say the die for the company’s buyout was cast in 2009, when Raghav Bahl asked Mukesh Ambani
for a lifeline
Few Options
With that has come a huge churn, the entire management team – CEO B. Saikumar, COO Ajay Chacko and the CFO R.D.S. Bawa — have all quit, leaving a clean slate for the new owners. The status of the group’s senior editors is uncertain. Rajdeep Sardesai, editor-in-chief of the channels, has gone on a month’s sabbatical but it is not known if he will return.

There has always been intense speculation when and how the Ambani trust would take full control. There were whispers in media circles that it was planned for end-June. However, the actual crunch time came faster and more suddenly than expected giving rise to talk of a ‘hostile’ takeover. An RIL spokesperson said the legal process for the takeover was not complete and, therefore, could not comment on the contours of the new management. He also said he could not respond to the charge that it was a ‘hostile’ takeover. He, however, did say that once the takeover was complete, the company would go public with its new plans and management structure.

What is believed to have muddied the waters for Bahl was a proposal by e-commerce subsidiary Homeshop18 in April to list on Nasdaq, which would have brought the company under the gaze of the US’s Securities and Exchange Commission (SEC). This may have alarmed the Ambani camp; and it was compounded by Bahl raising funds to ease his continuing cash flow problems by pledging shares that were not entirely his.

Many NW18 insiders believe Bahl had few options. The die was cast much earlier in 2009 when a desperate Bahl asked Ambani for a lifeline. Bahl had stretched himself thin buying dud companies like the publishing house Infomedia for a staggering Rs 225 crore. The new business verticals he created hoping to fund through public issues hit a wall with the 2008 meltdown. Advertising too dried up for his channels. Ballooning debt had touched Rs 1,400 crore by 2009 and the company had no cash. It was at that stage various entities backed by Ambani advanced funds to Bahl.

One such advance was for Rs 200 crore given by Sharanya Trading to Bahl’s main investment vehicle RB Holdings in April 2009 as secured compulsorily convertible debentures (SCCD). On conversion, these SCCDs would represent 99.5 per cent of the share capital of RB Holdings. As on 31 March 2012, RB Holdings held 30.47 per cent of NW18’s equity, but it is curious why these debentures never got turned into equity. An RIL spokesperson said “I will check; there is a possibility that here was debt funding” but denied RIL or its associate companies took equity in NW18.

Much of the Ambani-Bahl dealings are covered with shrouds. Why, for instance, did Bahl agree to buy the heavily overvalued ETV? Was it because it was conditional to the Ambani lifeline? A detailed email questionnaire to Bahl went unanswered.

RIL, Now A Media Player
RIL has always maintained it is not seeking “media control”. The acquisition of NW18, it says, is to provide “content for distribution through the 4G Broadband Network being set up by it”. RIL’s 29 May statement reiterates, “this acquisition will differentiate Reliance’s 4G business by providing a unique amalgamation at the intersect of telecom, web and digital commerce via a suite of premier digital properties.”

These explanations have not calmed concerns, and justifiably so. Here’s what RIL has just acquired: 14 news channels, including CNN IBN, IBN7 and slew of ETV channels, 15 entertainment and infotainment channels, film production, and seven online portals. Predictably, big media houses are feeling threatened. Bennett, Coleman & Co., publishers of the Times newspapers, have cranked up their war room to face the challenge.

Old monopolies will be broken and the media industry, starved for funds, may see some welcome infusion. But what does this mean for the freedom of the fourth estate? Nobody believes it is purely 4G content that the Ambanis are after. Pritish Nandy, who worked for the Ambanis’s short-lived publishing business before he turned entrepreneur, told BW in an earlier interview: “In India, it is not possible to exercise influence without control of news media. The Ambanis have realised that.”

The last big experience of the Ambanis in the news business was an unhappy one. The Sunday Observer bought from Jaico Press in 1990 and the Business and Political Observer, launched in 1991, never really took off and finally shut down in 2000. Will it be different in Round 2?

“It is difficult for those not in the media business to understand the ethos and working of news media,” said Uday Shankar, CEO of Star India, in an earlier interaction. For the Ambanis, the challenge of Network18 is real. So far, Bahl was managing things. Will RIL team up with more experienced media players to manage the business, as is being speculated; or will they do it themselves and prove the critics wrong?

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(This story was published in BW | Businessworld Issue Dated 30-06-2014)