Adlabs Films Ltd has informed the BSE on June 2, 2009 that the Ministry of Information and Broadcasting has given its “No Objection’ vide its letter dated May 29, 2009 to the transfer of operation of the FM radio license to Reliance Unicom Ltd (RUL) pursuant to the Scheme of Arrangement for the demerger of radio business of Adlabs Films Ltd”.
In the year 2006, the Board of Directors of Anil Dhirubhai Ambani Group (ADAG) controlled Adlabs Films had approved the demerger of the company’s radio business into Reliance Unicorn Ltd, and the Bombay High Court had earlier on April 4, 2009 given its approval to the scheme of arrangement between the companies.
So, where does Big FM go from here and what does it mean for the FM station and the industry from the business point of view? According to Ismail Dabhoya, Senior Vice President – Finance and Commercial, Big FM, “Big FM’s business, which is currently under Adlabs Films Ltd, will be transferred to Reliance Unicom Ltd, post which the company will get listed in the BSE and the NSE. Reliance Unicom will issue shares in the ratio of 1:1, where we will give one share for every share held by the shareholder in Adlabs Films Ltd.”
“The demerger allows for an independent organisation, financial flexibility to independently raise resources for future growth, valuation of the FM business on the stock exchange, implementation of ESOPs for retention of key talent and substantial unlocking of shareholder value to name a few,” explained Dabhoya.
The Government on September 2008 had allowed demerger of FM business from parent companies, a move that was welcomed by the Indian radio industry. Adlabs Films, however, is not the only one to get the approval to demerge its radio business. HT Media Ltd on March 26 had said that it had received the Delhi High Court’s approval for demerger of its radio business (Fever 104 FM) from its subsidiary HT Music and Entertainment Company and merge it with itself.
exchange4media also spoke to a few research analysts to find out their view on this demerging business.
Mihir M Shah, an analyst with Prabhudas Liladhar Ltd, said, “It makes perfect sense to demerge a company’s radio business to a subsidiary so that one can take a higher FDI inflow at the parent level as well as the normal 20 per cent, which one has in the FM business, and I believe that this is one of the reasons why it helps to demerge the radio business out of the parent to a subsidiary.”
According to an analyst from a brokerage house, who did not wished to be named, “The demerger of radio business of the parent to subsidiary would help raise money through strategy or equity dilution and the company can have a text efficient structure. An FDI hike, if and when announced, will have a very good impact on the business in raising more capital.”
FM Phase III policy is also expected to play a crucial for the growth of the business. However, the industry believes that lot of regulatory framework needs to be cleared before the Phase III rollout.