Network18 yet another consolidation of its Subsidiaries

Recently, the Board of Directors of Network18 Media & Investments Limited, a Reliance Group listed entity announced consolidation of its subsidiaries through a merger.

Network18 Media & Investments Limited (“Network18” or “Amalgamated Company”) is inter alia houses a portfolio of digital news websites and magazines. The equity shares of Network18 are listed on the Stock Exchanges. Network18 is holding company of e-Eighteen.com Limited (holds 91.89% equity interest) and TV18 Broadcast Limited (holds 51.17% equity interest).

e-Eighteen.com Limited (“E18” or “Amalgamating Company 1 is a material subsidiary of Network18. E18 inter alia owns and operates the well-known platform www.moneycontrol.com website and app.

TV18 Broadcast Limited (“TV18” or “Amalgamating Company 2 is a material subsidiary of Network18. TV18 is inter alia engaged in the media business, and it broadcasts general news channels in Hindi, English and other regional languages and business news channels in Hindi, English and Gujarati and broadcasts, through its subsidiary, Viacom18 Media Private Limited (“Viacom18”) general entertainment channels in Hindi, English, and other regional languages. Viacom18 also operates the well-known JioCinema platform. The equity shares of TV18 are listed on the Stock Exchanges.

In April 2022, Reliance Projects & property management Services Limited, a wholly owned subsidiary of Reliance Industries Limited transferred “Jio Cinema” business undertaking to Reliance Storage Limited. Immediately in November 2022, Reliance Storage Limited approved a scheme of amalgamation whereby Reliance Storage Limited got amalgamated with Viacom18 Media Private Limited a subsidiary of TV18 Broadcast Limited which holds 51% interest in Viacom18 Media Private Limited. Pursuant to the scheme, Viacom18 also issued equity shares+ compulsorily convertible preference shares worth Circa INR (Indian Rupees) 15,145 crore to Reliance Industries Limited plus strategic investors. As on date, TV18 hold dilutive 13.54% stake in Viacom, RIL related entities hold 57.47% stake & remaining stake by strategic investor.

This transaction is another merger like the one in 2018 where the then WoS of Network18 were merged with the holding company. We covered the article in our May 2018 issue.

The Transaction

The rationale for the merger as envisaged in the scheme:

• The shareholders of all the three companies, Network18, E18 and TV18, will be able to participate in the consolidated businesses of the group.
• The combination of the businesses of TV18, E18 and Network18 will result in operational synergies, cost optimization and increased revenue realisation.

Appointed Date for both mergers is the opening business hours of April 1, 2023, or such other date as may be approved by the Boards of Companies.

Swap Ratio & Share Capital of the entities

For amalgamation of E18 with Network18:

19 equity shares of Rs. 5 each fully paid up of Network18 for every 1 equity share of Rs. 10 each fully paid up of E18.

For amalgamation of TV18 with Network18:

100 equity shares of Rs. 5 {Five) each fully paid up of Network18 for every 172 equity shares of Rs. 2 each fully paid up ofTV18.

There will be significant increase in the share capital of the merged entity. The promoter's stake will go down from 75% to 56.89%.

Accounting Treatment:

As both E18 & TV18 are subsidiaries of Network18, the transaction being between entities under common control, the transaction will be recorded in the books of Network18 as per Appendix C to the Indian Accounting Standard (Ind As) 103 “Business Combination”.

Ancillary Provisions under the scheme:

As per clause 21 of the proposed scheme, the entire negative balance of retained earnings of Network18 as on 31^st March 2024 shall be adjusted against the balance in the securities premium as on that date. The Appointed Date for the transaction is 1^st April 2023 however, the losses shall be set-off against the balance as on 31^st March 2024. Thus, any losses being transferred pursuant to the merger shall also be likely to be set-off against the securities premium of Network18.

Standalone position of Network18 as on 31^st March 2023:

Conclusion:

The proposed transaction is to create strong media company with multiple channels providing entertainment and business and other news. It has online presence in the form of moneycontrol.com also having paid subscription. Several steps are taken for JioCinema including invitation of strategic cum financial partner. The cash available with Viacom 18/JioCinema can be used for acquisition (talks of Disney India Business). It is expected to create value for all the stake holders.

 It is preparation for the strong entity for the future expansion and for that purpose unusual steps of writing off all the losses till March,24 of all the three entities against share premium account which is not normally followed accounting practice.