The U.S. cable major Comcast, together with the private equity fund Blackstone and the family office of James Murdoch, Lupa Systems, can bid for the Indian media company Zee Entertainment Enterprises. The Comcast-led consortium pursued Zee Entertainment’s due diligence, even as gigantic social media Facebook approached its promoters for a prospective agreement. However, there are problems with control, accurate stake quantity, and mismatch valuation, which can prove to be deal breakers.
But an agreement is probable to take place before September 2019 as Essel Group approaches a default on some 7,000 crore it owns to mutual funds. While Comcast leads the consortium, Murdoch can operate on the floor as the local partner and carry on a small interest. Also, as part of a non-competitive agreement with the Walt Disney Company after Rupert Murdoch sold 21st Century Fox (including Star India) to Disney, Lupa cannot have more than 9-10 percent stake in ZEE.
VALUATION MISMATCH KEY POTENTIAL DEAL-BREAKER
While the ZEE promoters want to remain on to operate the company, after causing an accessible bid or getting a definite route to command, prospective customers are eager to take power, even if ZEE managing director Punit Goenka remains originally in an executive position. Half the promoters’ interest would pick up Rs 6,603 crore at present rates. However, the proponents were looking for a significant premium. A main prospective deal breaker continues the valuation mismatch.
“We are making excellent strides and we hope to sign a binary agreement with political uncertainty behind us by July,” Goenka told journalists following the company’s last quarterly results. The agreement with a potential financial buyer is expected to be finished earlier than with a strategic client, according to the management, as CCI must approve the latter, which will take 30-45 days from the deadline of the binding contract as per the management.
Mails sent to Comcast, Blackstone, Facebook and Atairos did not receive any reply till the time of going to press.
ZEE announced last November that its promoters, headed by Chandra, are planning to sell a strategic partner up to 50 percent stake to deleverage their balance sheet. Subsequently, as part of the asset monetization attempts, management has stated that it is accessible to selling over 50 percent of the company’s stocks.
The promoters own 38.2 percent of the business as per disclosures issued in March 2019, of which 66.18 percent is pledged with mutual funds, insurers and other economic entities. But analysts claim it’s down to 36.7 percent at the moment.
In order to prevent default, Essel Group owes Rs 7,000 crore to mutual funds and a stake sale must take place before September 2019.
Since the early 1980s, the $84-billion Comcast, headed by Brian Roberts, has been a serial buyer and vendor of media resources including cable networks, broadband resources, content providers, internet providers and even animation studios. It missed out on 21st Century Fox, however, after last year’s $65-billion offer by Walt Disney Co. In India and other high-growth economies, the firm was scouting for resources. ZEE provides them with India’s much-needed launchpad, media analysts said.
Interestingly, Blackstone bought out Essel Propack from Subhash Chandra’s brother Ashok Goel earlier this year.
The deal will give the much-needed respite to debt-ridden Chandra, whose Essel Group is reeling under severe debt crisis.