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September 25, 1999


Analysts laud News Corp-Zee deal, wonder about the funding

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News Corporation is better positioned to operate in India now that it has swapped its Indian joint venture interests for cash and a 7.5 per cent stake in its existing partner, Zee Telefilms Limited, analysts said in New York, the United States of America.

STAR TV, a unit of Rupert Murdoch's News Corp, and Zee Telefilms, a leading player in the huge Indian media market, each owned half of the three joint ventures, Asia Today Limited, Patco and SitiCable.

The move will eliminate obstacles Murdoch has had operating as a non-Indian player and instead give him an insider's ticket to ''Bollywood,'' India's Hollywood.

''Murdoch reduces his participation, but it is participation in an asset that has greater potential. It is smart and it pays,'' Richard Read, senior analyst at Credit Lyonnais Securities in New York, said.

The joint ventures involved in the deal include Zee TV, Zee News, Zee Cinema and SitiCable. The total value of the deal is about 300 million -- half in cash, half in Zee Telefilms stock.

''India is proving to be a difficult market for non-Indian entities to launch television networks. A combination of some dramatic regulatory shifts and enormous levels of piracy, with cable television wires strung through trees, has made it very difficult to establish a strong presence,'' Chris Dixon, Painewebber media analyst, said.

The deal leverages STAR TV's experience in India and at the same time aligns it with one of the primary producers and suppliers of products in Bollywood, one of the most prolific movie industries in the world, said Dixon.

STAR TV, Asia's leading satellite TV broadcaster, was established in 1991 and became a wholly-owned subsidiary of News Corp in 1995. Its channels provide both subscription and free programming to over 300 million people in 53 countries in Asia, India and the Middle East.

The deal also makes financial sense, analysts said.

''It's a good number for News Corpm'' said Dixon about the purchase price.

Media industry sources in Asia were meanwhile mixed in their impressions of the deal.

While some analysts said Zee made a good deal by having to pay Murdoch what they considered a relatively small sum, others said Zee may have overpaid based on concerns that among media holdings, broadcasting is a relatively risky investment.

''The valuations appear to be a little stretched,'' said Devina Mehra, director, research, First Global Finance.

Mehra also voiced concern over uncertainties surrounding a recent move by Zee's top executive, Subhash Chandra, to fold his own private media holdings into the public company he heads. Until the financial effects of Chandra's move are clear, the financial condition of Zee will also be hard to evaluate.

Mehra also said some investors may not like that Rupert Murdoch, with the Zee deal, appears to be partially leaving the spotlight.

''Investors have always viewed Murdoch as the positive factor in the company and with his moving out they may react negatively to the news,'' Mehra said.

For its part, STAR TV also said the deal made sense financially.

The deal is subject to the approval of Zee Telefilms's shareholders and regulatory authorities, including the Reserve Bank of India. As part of the transaction, STAR TV and the Zee group also said that all outstanding legal matters between the parties would be settled.

In India, analysts said the deal has been in the making for two years, with negotiations held up by the two sides' differing valuations.

Analysts said the merging of the joint ventures into Zee Telefilms was a positive development and the restructuring would bring rewards.

"The move is very good for Zee. The consolidated entity (Zee Telefilms) will be much stronger as it will get control of distribution, broadcasting and cable operation," Vijay Baoney, analyst at Jardine Fleming India Broking Limited, said.

Most saw the move providing a further boost to Zee Telefilms's share price, already up sharply after a planned stock split and merger of group companies into Zee Telefilms.

On Saturday, the stock was being traded unofficially at about Rs 5,200 in Calcutta. (Indian stock markets operate from Monday to Friday.) Yesterday, soon after the deal was announced, it was trading in the Rs 4,700-Rs 4,800 range. Zee shares, which have risen 60 per cent this month, ended up Rs 155 at Rs 4,739 on the Bombay Stock Exchange on Friday.

"The news is extremely positive for Zee Telefilms. It will bring the whole of the advertising revenues (of ATL's channels) which were over four billion rupees ($91.87 million) in 1998/99 to Zee's balance sheet," said Deepti Chaturvedi, analyst at ASK-Raymond James Securities India.

The Zee Group reaches 140 million people in 25 million homes in India and another 70 million viewers in 15 million homes overseas.

The deal puts an end to a festering dispute between STAR and Zee. STAR has increased the Hindi language content of its programming, and Zee retaliated by increasing its English language content. "Both STAR and Zee express happiness on this transaction as it will put an end to all the disputes and the court cases between them," a Zee statement said, without elaborating.

"We have enjoyed a very profitable relationship with Chandra and Zee Telefilms. In effecting this restructuring, we expect to achieve even greater returns as the new merged entity will now be best positioned to maximize the value of these assets," a Star spokesman said.

Ashish Bhatnagar, vice-president, corporate finance, SSKI Securities, which was commissioned to study Zee's restructuring plans in 1997, said the Indian company may have to raise money, possibly through a US listing, to pay for the deal.

"One can now assume that Zee will be the undisputed leader in broadcasting. This news is very positive for the firm, but Zee will need money for funding," Bhatnagar said.

STAR TV has invested $80 million in building up its Indian operation and expects to break even this financial year.



STAR to swap joint ventures in India for 7.5% stake in Zee Telefilms
Zee launches new magazine; Subhash Chandra wins E&Y's entrepreneur award

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