Reliance, Disney drafting term sheet to merge their India operations
Reliance Industries Ltd. (RIL) and Walt Disney Co. are in talks to merge their media and entertainment operations in India. This might make RIL the majority stakeholder in the country's largest media and entertainment business. The proposed merger would involve creating a subsidiary of RIL's Viacom18, which would then absorb Star India through a stock swap, with Reliance holding at least 51% of the merged company.
Cash infusion and shareholding structure currently under negotiation
Both RIL and Disney are discussing a plan to invest between $1 billion and $1.5 billion in immediate capital, with the final ownership structure being determined by each party's cash contribution. RIL is expected to pay cash for its controlling stake, as both businesses are considered similar in size. The merged company's board is anticipated to have equal representation from Reliance and Disney, with at least two directors each.
Exploring a quicker merger
Key meetings between the two parties are expected to take place before signing the term sheet, with an accelerated timeline for announcing the merger, possibly by January-end. Once the term sheet is agreed upon and due diligence is completed, independent valuers will begin the valuation process. "It's a merger not an acquisition but not with equal shareholding," said one person familiar with the matter. "Both sides will put equity instead of one buying the other out for cash."
Talks involve exclusive content license and a lock-in period
Disney is likely to grant the joint venture a five-year license for exclusive subscription video-on-demand (SVOD) content, including Disney+ originals and library content. A five-year lock-in period, except in the case of an IPO of the merged company, is also expected to be agreed upon. Distribution channels and Jio Platforms will be made available to the joint venture on mutually agreed terms, with a list of competitors to be barred from engagement.
Disney's CEO eyes a stronger India presence
Walt Disney CEO Bob Iger mentioned in a November earnings call that the company was "considering options" but wanted to remain in India and "strengthen our hand, improve the bottom line." According to Barclays's US media sector analysts, one way to manage Disney's costs without standalone cuts could be to extract synergies from transactions with other companies, such as combining Star India with Reliance Jio's local media business.
