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Was Sony-MSM deal good for minority investors?

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Was Sony-MSM deal good for minority investors?

Last week Sony Pictures Television (SPT) signed an agreement to acquire approximately 32 per cent of shares of Multi Screen Media (MSM) held by Grandway Global Holdings (Grandway) and Atlas Equifin (Atlas) for an aggregate cash consideration of USD 271 million. It is positive transaction for the Indian media space in general because it also comes at a time when broadcast digitisation has started to pick up. So there is an alternative revenue medium which will start to come in.

It is a positive move for the channel, as this deal reinforces the confidence of SPT in the Indian operations and will give it the required muscle power to expand in India. It is also positive in the sense that the minority shareholders sold their stake directly to the parent company. But does this deal involve a lot more than what meets the eye? We tried to get a few answers, however they are quite subjective.

Have investors got the right valuation for the deal?

If we look at the valuations of MSM, which was earlier called Sony Entertainment Television (SET), they have reduced drastically, from a reportedly USD 2.5 billion in the year 2000 to USD 1 billion in Feb 2008 to the current USD 846 million (approximately Rs 4,200 crore). According to market reports, the total revenue (including all channels and the distribution arm One Alliance) of the company would be around Rs 3,000 crore. That gives the valuation of the company to 1.6 multiple of its revenues. Does this mean that the minority shareholders might have got a better deal had they sold their stake a few years back or waited for some more time for the right investor to come by?

“It is very subjective to say that the deal was done at a lower valuation. Firstly, the minority shareholders have been in talks for selling their stake with umpteen numbers of investors. But they were not getting the valuations. Also there were issues with regards to rights of the selling shareholders rights and those of the incoming shareholders. So I think the current value is a fair price for the business. As a private company, they do not generate as much profitability as the ones like Zee TV do right now. I think it is a good move for both the parties. And invariably, if you are look at the minority shareholders, and the investment that they had put in the company to start with, they have got an extremely lucrative return from their initial investment,” said Nikhil Vora, Managing Director, IDFC Securities.

Another media analyst explained that valuations of media and entertainment companies have gone down across the board. “Most of the media company valuations were sky rocketing about 5-10 years back, which is not the case today,” he said.

Minority shareholders did not have many exit options?

There have been issues between the minority shareholders and the company (MSM) couple of times in the past. In 2008, the Indian promoters had moved the Bombay High Court, questioning the board's capital call to its shareholders for infusing USD 40 million. In July 2010, they charged Sony Pictures Entertainment of financial mismanagement. It is also a known fact that the seven Indian shareholders that held 32 per cent stake in MSM through Grandway and Atlas have been looking at selling their stake from quite some time now. However, the terms and conditions of the exit routes were not very clear.

“As it is a private company deal, one cannot comment on the nuances of the deal. However, there would have been a clause that the minority shareholders can sell their stake only to the parent company, or they would not have got the right valuations and deal through private equity. Also, one should keep in mind that when the market scenario is dull, the number of exit options that shareholders have gets limited. I mean, in this scenario, there was no way they could have exited by proposing an initial public offering (IPO). So, maybe they did not have many options, and so they went ahead with the deal,” said a media analyst who did not wish to be quoted.

Was Sony looking at unhampered growth?

“It could also have been a case where the parent company would have wanted to be aggressive in the Indian market and wanted to make further investment, but the Indian shareholders may not have been willing to infuse the extra investment required for growth. And hence SPT decided to take the realms of affairs in its hands and buy out the minority share holders. And minority shareholders, in any way, were looking at an exit option,” said a media analyst.

The CEO of MSM was also quoted in news reports saying that the deal will give them more flexibility and that they would be free to invest and expand regionally now. The company’s aggressive stance was evident when they agreed to take 30 per cent stake in regional broadcaster Maa Television Networks. “MSM by default has clearly got its act together in the recent past. They have done lot of credible work in India and I think this deal will only enhance their stance in India,” said Vora of IDFC.

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