Study On The Demerger Of Dish Tv Finance Essay

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DishTV is a division of Zee Network Enterprise (Essel Group Venture). EGV has national and global presence with business interests in media programming, broadcasting & distribution, specialty packaging and entertainment. Zee Network incorporated Dishtv to modernize TV viewing. Dishtv is India's first direct to home (DTH) entertainment service. By digitalizing Indian entertainment, this enterprise brought best television viewing technology to the living room. It not only transmits high quality programmes through satellite; but also gives a complete control of selecting channels and paying for them.

Dishtv imparts DVD quality picture and stereophonic sound effects to the customers. It promises to change the experience of TV viewing with its uninterrupted transmission service. The Endeavour enters next level of entertainment with futuristic features, such as EPG (Electronic Programme Guide), parental lock, games, 400 channels, interactive TV and movie on demand.

Dishtv also brings exclusive national and international channels for the first time in India.

Dishtv is a division of Zee Network Enterprise (Essel Group Venture). EGV has national and global presence with business interests in media programming, broadcasting & distribution, specialty packaging and entertainment. Zee Network incorporated Dishtv to modernize TV viewing. Dishtv is India's first direct to home (DTH) entertainment service. By digitalizing Indian entertainment, this enterprise brought best television viewing technology to the living room. It not only transmits high quality programmes through satellite; but also gives a complete control of selecting channels and paying for them. To experience the new life breathing in television technology Dishtv extends high quality broadcast and thorough entertainment.

There was no IPO for this, reason for demerger is that they wanted to track complete DTH services/sales business as different entity. After de-merger the stock got listed on 18-APR-2007


The year 1992 ushered in an upheaval of sorts in the country. With the political, social and economic landscape changing facades, an upsurge in the world of media and entertainment was waiting to burst open. An upsurge that would resculpt social drifts and impart new meaning to TV viewing in India. Subhash Chandra, one of India's leading entrepreneurs, who sought to create a revolution by facilitating the convergence of media and communication with a mirror into the common man's life and ways, created Zee Telefilms Limited in October 1992. This enterprise was to act as the chief content provider for Zee TV - India's first Hindi satellite channel. Zee Telefilms Limited (ZTL) is now known as Zee Entertainment Enterprises Limited (ZEEL).

Very early in the aftermath of launching ZTL, Subhash Chandra entered into a joint venture with the STAR group of companies. This pact was to augment television broadcasting in India and deliver higher quality of programming content. In another development around the same time, media mogul, Rupert Murdoch's News Corp Limited acquired the rights to distribute STAR's satellite TV content. This made News Corp a de facto partner of Zee. To strengthen their network further, Zee and News Corp co-founded Siticable, a leading cable MSO. In March 2000 however, Zee bought News Corp's stake in both the broadcasting business and Siticable.

De-merger of Dish TV

Zee board approved corporate restructuring proposal news & regional language channels to be demerged from zee and be listed cable business to be demerged from zee and listed independently restructuring to create 3 listed companies with proportionate shareholding of zee shareholders demerger of consumer businesses gets in principle approval. When approved, this would create a 4th listed company


The proposal to de-merge the consumer services business for DishTV has met with in principle approval from the Board. The management has been authorized to evaluate the proposal and its consequences and present to the Board.

Board approves restructuring of Zee into three independently listed companies, with shareholding proportionate to Zee shareholding.

The news related business of Zee Telefilms Limited (ZTL) would be demerged to Zee News Limited (ZNL). Shareholders of ZTL would receive shares of ZNL in proportion. Zee News would be listed independently, after relevant approvals.

The cable business of Siticable and the cable related business of Zee Telefilms Limited (ZTL) would be de-merged into Wire and Wireless (India) Limited (WWIL), a new company. Shareholders of ZTL would receive proportionate shares of WWIL as consideration.

Zee Telefilms Limited announced restructuring proposals relating to its news business and cable business. It also announced an "in principle" approval of a proposal to demerge the consumer services business for DishTV on March 2006. The Board of Directors in its meeting has approved the restructuring proposal related to the de-merger of news and cable business while directing the management to evaluate the direct consumer services business (Dish TV related) and the assess the effect of demerging it. Mr. Subhash Chandra, Chairman, stated, that ZTL's existing structure had the following ambiguities in its businesses:

Due to regulatory restrictions, the business of Dish TV was structured in a much fractured manner and hence was difficult for ZTL shareholders to understand. At the same time, the structure was also tax inefficient.

The management of the businesses under the same Board was not focused and hence not able to capture the growth opportunities in the market as different skill sets are required for distribution to trade, which in this case is cable business, from skills sets required for direct consumer distribution which is Dish TV.

The regulation in the news and news related broadcast content is different from regulation in entertainment and other content.

Due to the technological advancement and changes, the media businesses have to be prepared for a forthcoming digital age.

Restructuring of news business

In compliance with the News Uplinking Guidelines of Government of India, w.e.f. October 2005, newsgathering activities of ZTL were transferred to Zee News Limited, while downlinking and commercial exploitation of all news-bearing channels was retained under ZTL. Despite a compliant corporate structure for news bearing channels (particularly regional channels),It is felt it important to bridge the divide and bring all the operational activities together, to create strategic focus, remove tax efficiencies and unlock shareholder value.

As per the scheme of arrangement the news-related business (Zee News, Zee Business, Zee Bangla, Zee Punjabi, Zee Marathi, Zee Telegu and Zee Kannada (being launched soon)), will be demerged into Zee News Limited (ZNL) (name to be changed suitably) would be de-merged into Zee News Limited (ZNL) and the shareholders of ZTL would receive proportionate shares in ZNL.

Based on the relative valuation and the resultant swap ratio, Foreign Institutional Investors (FIIs) would be allotted shares in ZNL in compliance with Government of India guidelines. In case, the allotment works out to more than 26%, the FIIs would be allotted Preference Shares of equivalent value on a proportionate basis.

The scheme of arrangement was approved by Stock Exchange, shareholders and creditors of Zee and from Bombay High Court. Zee News Limited would be listed on all stock exchanges where ZTL is listed.

Restructuring of cable business

Over the years, business models of content business and distribution business including cable operations have diverged considerably. Despite large and well-positioned investments the cable assets have been under-utilised and have been marginal contributors to Zee financials. On the other hand, there have been vast technical advances in cable that can be optimally exploited from our well-distributed asset base. To properly address the emerging business opportunities in digitization of cable and convergence, there also are large funding requirements. And the regulatory requirement applicable to cable distribution is very different to broadcasting. Combined with the fact that the competitive environment of distribution business is also different, it was felt that an invigorated corporate and governance set up is essential to aggressively address the emerging opportunities.

As per the scheme of arrangement the cable business of Siticable, a 100% subsidiary of ZTL and the cable related business of ZTL would be de-merged into Wire and Wireless (India) Limited (WWIL), a new company incorporated for the purpose. The shareholders of ZTL would receive shares in WWIL in proportion, as consideration. Simultaneously, Siticable would demerge its cable business to WWIL. WWIL would in turn issue Preference shares to ZTL as consideration.

The scheme of arrangement would require approval of the Stock Exchange, shareholders and creditors of Zee and from Bombay High Court. WWIL would be listed on all stock exchanges where ZTL is listed.

Restructuring of consumer business for Dish TV

The direct consumer business is marked by division of activities between the DTH license holder ASC Enterprises Limited (ASCEL) and the subsidiaries of Siticable. It leads to lack of clarity in structure, inefficiencies in tax and diffuse strategic focus. Accordingly, the Board was briefed about the opportunity of bringing it all under one company and the process required therefor.

As per the proposal, the direct consumer related business of ZTL can be de-merged into ASCEL, with the shareholders of ZTL receiving shares in ASCEL in proportion, based on the relative value, as consideration. The proposal has met with in principle approval of the Board. The Board has authorized management to evaluate the proposal and its effect and present to Board for final approval.

The Company is engaged in two major businesses viz. provision of Direct-to-Home ('DTH') Services, in pursuance of a license granted by the Ministry of Information and Broadcasting, Government of India, under the brand "DISHTV" from the last three years and Satellite related services.

The shareholders of the company at their meeting held on February 2, 2007 had consented to change the name of the company from ASC Enterprises Ltd. to DISHTV India Limited subject to approval of Central Government, in order to make the new name commensurate with the business of the Company. The company got the approval of Central Government on March 7, 2007, the date from which the new name viz. DISHTV India Limited became effective.

The equity shares of DISHTV are listed on The National Stock Exchange of India Limited (NSE), The Stock Exchange Mumbai (BSE) and on The Kolkata Stock Exchange Association Limited (CSE) and can be traded on each of them. The stock code of DISHTV shares is 532839 on BSE and DISHTV EQ on NSE.

On De-merger, the shareholders of ZEEL shall be entitled for 23 fully paid up equity shares of Re.1 each of DISHTV India Ltd. for every 10 equity shares of Re 1 each held by them in ZEEL.

Upon the Scheme becoming effective, the fully paid-up equity share capital of DISHTV India Ltd. after giving effect to the entitlement of shares shall be reduced by canceling 3 equity shares for every 4 equity shares held in DISHTV India Ltd, so as to have serviceable capital.

After giving effect of entitlement of shares and reduction of capital, DISHTV India Ltd shall issue and allot 5.75 fully paid equity share for every 10 equity share held in ZEEL as on the Record Date.

Zee, over the years has built a diverse portfolio of leading businesses and has driven initiatives that increase efficiency at every juncture of development. Zee has established a very strong consumer connect and is governed by a set of values that holds them in good stead in the face of changing viewer environments.

Rights Issue Details

Dish TV India Ltd has informed BSE that the Board of Directors of the Company at its meeting held on October 03, 2008, inter alia, has decided for issue of 518181818 equity shares of face value of Re 1/- ("Equity Shares") of the Company for cash at a price of Rs 22/- Per equity share including a premium of Rs 21/- per equity Share aggregating to Rs 113,999 lakhs to the equity Shareholders of the Company on rights basis in the Ratio of 121 equity shares for every 100 equity shares held on the record date in terms of the letter of Offer ("issue").

The total issue price is 22 (twenty two) times of the face value of the equity share. The issue price for the Equity shares will be paid in 2(Two) installments; 50% issue Price will be payable on application and balance 50% of the Issue price will become payable at the option of the Company.

Subscribers can pay Rs 6 of the issue price of Rs 22 per share on application, while Rs 8 per share will become payable after three months but within nine months from the date of allotment, and the balance Rs 8 after nine months but within 18 months. Out of the proceeds of the issue, Dish TV intends to use Rs 7.90 billion towards subscriber acquisition cost and Rs 3 billion for repaying loans. Enam Securities is the lead manager to the issue. Promoters underwriting the rights issue

GDR issue

Dish TV raised $100 million through an issue of global depository receipts (GDR) to private equity firm Apollo Management. The company issued over 117 crore new shares of Re 1 each in the form of 117,035 GDRs, at a price of $854.5 per GDR. Each GDR represents 1,000 equity shares of Re 1 each, aggregating to $100 million (around Rs 466 crore). Following this issue, the Apollo management will own 11% of the expanded capital of Dish TV

The Promoters have infused nearly Rs.300 Cr. During Dish TV Rights Fiasco, due to poor Rights issue subscription Promoters had to underwrite the rights issue and thus increasing the stake in the company

The outlook for the stock remains negative. The stock exhibited its weakness after climbing to Rs 51. It now finds strong support at about Rs 41, and a close below that could take it lower to Rs 32. Besides, recovery was mainly fuelled by short covering as Dish TV Futures shed over 2 per cent in open interest.

At CMP of Rs 37, the stock trades at Rs 987.8 crore. It is believed the industry is looking attractive mainly on back of digitalization growth with HITS policy approved by cabinet. To capture the growth coming ahead it is believed that Dish TV is better placed than its peer group. It is recommended to 'BUY' the stock with a price target of Rs 50, representing upside potential of 35%.

Expect DTH industry to add 10 million subscribers in each of the next three years. It's for sure dish to improve subscriber addition in future. It expected Dish to remain the market leader for the next five years, despite an assumed decline in market share from 25.6% to 22%. Dish has delivered positive EBITDA for three consecutive quarters. Positive investment view based on strong improvement in operating cash flows, led by strong growth in subscriber base and tight cost control it is expected Dish TV to add 4.4m subscribers over the next two years, i.e. increase in CAGR of 27.4% in the subscriber base in future.

Dish TV management has done a commendable job in capping the content cost as a percentage of subscription revenues by entering into fixed-price contracts; this is the key reason for the sharp rise in EBITDA.

Funding overhang removed. Sixty-four percent of the money raised in a rights issue has been infused into the company, and it is not viewed as a bottleneck to growth.

Dish TV (Dish), in its second round of funding, has raised Rs 4.7bn (US$ 100mn) via the issue of GDRs (global depository receipts) to the Apollo Group. The deal, priced at Rs 39.8/share (US$ 0.85), will result in equity dilution of 11% on the expanded capital base. Expected impact of dilution to be mitigated by higher subscriber acquisition or, alternatively, lower interest outgo. This implies a neutral to positive impact on operating performance with a simultaneous reinforcement of the balance sheet

Timely fund raising to strengthen market dominance:

With increasing competition from existing DTH rivals as well as digital cable players (WWIL, Den Networks, Hathway Cable), Dish's timely raising of funds will help it remain competitive and reinforce its number 1 position in the digital Pay TV market. Both WWIL and Den have recently raised money via a rights issue and IPO respectively, whereas Hathway has filed for a public offer recently.

Equity dilution will fund subscriber acquisition:

The equity dilution is needed to fund subscriber acquisition. Forecast of 5mn to 6mn DTH subscribers over next 2 years, against estimates 3.6mn. The company incurs an upfront cost of Rs 2,500-2,600 per subscriber, against Rs 3,500-4,000 for competitors, by way of a subsidy on set-top boxes, marketing spend and acquisition commission.

If Dish meets its target of 5mn subscribers at a cost of Rs 2,500 each

Then its funding requirement would around ~Rs 12.5bn.

This is met primarily from its Rs 8.3bn rights issue and the current Rs 4.7bn GDR issue.

Equity dilution to shore up balance sheet:

Dish's balance sheet remains highly geared with a negative net worth of Rs 6.2bn and net debt of Rs 10.8bn as of FY09. The rights and GDR issues fortified the balance sheet and turn the company net-worth positive. Despite board accord to raise US$ 200mn, the management appears to have strategically restricted the equity dilution to 11% of post-issue capital to comply with the 20% FDI cap guidelines and also to skirt the mandatory open offer. It is believed that Dish is adequately funded and do not foresee any further dilution in the near term.