Jagran Prakashan Ltd (JPL) on May 5, 2010 agreed to buy out the publishing business of Mid-Day Multimedia Ltd (comprising publication brands – viz., Mid-Day published from Mumbai, Pune, Bangalore and Delhi, Sunday Mid-Day, Gujarati Mid-day and The Inquilab, the largest read Urdu newspaper in the country and all publication related Internet properties) in a 7:2 share-swap deal. For every seven shares held in Mid-Day Multimedia, the shareholders will get two shares of JPL. Though on the face of it the deal looked expensive and shares of JPL closed at 3.16 low at 115.05 on BSE, most media analysts have given the deal the thumbs up.
Mihir M. Shah, Research Analyst with Alchemy Share & Stock Brokers Pvt Ltd, said, “Apparently, the deal looked negative because the company is getting into English business, but the fact is that the price that they are paying for the English business is very small. The valuation for acquiring Mid-Day seems to be reasonable and EPS accretive (acquisition which is expected to increase earnings per share).”
Another analyst, who did not want to be named, explained, “On the face of it, the deal might look a little expensive (JPL is trading at 19x FY10E PAT and Mid-Day is valued at 20x FY10 PAT), however, JPL had to pay a controlling stake premium. Moreover, we believe that cost saving in Mid-Day’s printing business (in procurement of newsprint, lower administration and employee costs) will improve its margins going forward.”
Amit Jaiswal, Company Secretary, Jagran Prakashan Ltd, affirmed that they would have cost and marketing synergies of both the businesses going forward. He said, “Apart from the printing facility in Mumbai, we will be able to exploit the distribution network of Mid-Day, which is quite robust. And definitely, they have a huge retail franchise from their local retail classifieds. Those customers will also be good for our City Plus tabloid.” In terms of costs, Jaiswal said that the company would rationalise common offices in places like Delhi, Mumbai and Bangalore and leverage bulk buying of newsprint.
Analysts feel that this acquisition will give Jagran access to more avenues, especially in the metros, where it does not have significant presence. “Mid-Day, with its presence in markets like Mumbai, Delhi, Bangalore and Pune (recently launched), is likely to fill the gap in JPL’s portfolio vis-à-vis its peers HT Media (HT and Hindustan) and DB Corp (Dainik Bhaskar and DNA), which offer both English and Hindi publications to its advertisers. Hence, JPL’s combined offerings are likely to boost its advertising revenues due to bundling effect,” said Anand Shah, Senior Research Analyst - FMCG & Media, Angel Securities. Vikash Mantri, AVP, ICICI Securities, too, believed that with this deal, JPL would be able to enhance its revenues by targeting national customers.
For FY10, Mid-Day Infomedia Ltd (MIL) had reported revenues of Rs 950 million, with an operating margin of 20 per cent, while PAT for the year stood at Rs 100 million. “The current business of MIL does not require any additional funding, however, the erstwhile promoters lacked the financial muscle to scale its proven brands. Now, with transfer of these brands to print media major JPL, having a war chest of Rs 4.75 billion (Rs 2.5 billion cash and Rs 2.25 billion funding to come from Blackstone private equity) will help to substantially scale up the business,” noted Mihir Shah of Alchemy. He further said, “With regards to future expansion plans, we expect JPL to leverage more on MIL’s regional properties Inquilab and Gujarati Mid-Day by entering newer markets. Expansion in English print business in Mumbai should be limited to synergies with i-Next and City Plus.”
Some analysts, however, feel that the deal should have been a cash deal and not a share-swap one. According to Namrata Sharma of Dolat Capital, “A cash deal would have been better for JPL shareholders as share swap amounts to sharing perpetual benefits of growing regional business with matured English print business.” Another analyst, who did not wish to be named, said, “A cash deal would have been better for JPL shareholders, because their holding is diluted to that extent. However, the dilution is only close to 5 per cent, so it is not that big a deal.”
The deal will lead to around 4.9 per cent dilution in the existing equity of JPL and Mid-Day shareholders will comprise 4.7 per cent of the expanded equity of JPL. Promoter shareholding in JPL will come down to 52.7 per cent from 55.3 per cent.
“Dilution for JPL’s existing shareholder is only 4.75 per cent, and for a cash deal we definitely would have to shell out Rs 200 crore. In a market like this, having strong cash flow is very important. JPL is currently sitting on good cash levels. Apart from that, a share-swap ratio reduces complications like making an open offer and doing a takeover, etc. Through this process, things would be able to move faster,” explained Jaiswal of Jagran Prakashan.
Meanwhile, the radio business of Mid-Day Multimedia Ltd, operated through its subsidiary Radio Mid-Day, will continue to remain with the present shareholders of Mid-Day Multimedia Ltd. Shares of Mid-Day Multimedia gained 18.13 per cent to close at Rs 33.55 on the BSE.