Mukesh Ambani’s Reliance, Disney Nearing Term Sheet For India Operations Merger

Mukesh Ambani’s Reliance Industries Ltd (RIL) and Walt Disney Co. are in the process of finalising a non-binding term sheet for the merger of their media and entertainment operations in India.

A newly-formed subsidiary of Reliance’s Viacom18 will reportedly absorb Disney’s Star India through a share swap deal in January, as per the discussions.

The talks are on to finalise a business plan that involves an immediate capital investment of approximately $1-1.5 Bn. The ultimate shareholding structure and valuation of the entity will be determined based on the cash infusion from both Reliance and Disney.

This development was first reported by ET.

The board is anticipated to have equal representation from Reliance and Disney, with a minimum of two directors each. Bodhi Tree, led by Uday Shankar and holding the second-largest stake in Viacom18 after Reliance at 15.97%, is expected to secure a seat on the board. Additionally, the inclusion of at least two independent directors is under consideration.

Before finalising the term sheet, both parties are expected to conduct crucial meetings. Following this, an accelerated timeline is anticipated for announcing the merger, with a potential target date as early as the end of January.

Once the term sheet is agreed upon and confirmatory due diligence is completed, the official valuation process will commence. Independent valuers will be involved in determining the valuation of the merged entity.

Additionally, Disney is likely to grant a five-year exclusive subscription video-on-demand (SVOD) content license for Disney+ originals and its library content to the joint venture company.

As part of the agreement, there is expected to be a five-year lock-in period, with exceptions allowed only in the case of an IPO of the merged company. Distribution channels and access to Jio Platforms will also be made available to the joint venture on terms agreed upon by both parties. Furthermore, a list of competitors with which any engagement is prohibited will be established.

Disney acquired the entertainment assets of 21st Century Fox in 2019 for $71.3 Bn. Post the acquisition, Star India came under the aegis of Disney and Hotstar was rebranded as Disney+Hotstar.

At the time of acquisition, Star India was considered as one of Fox’s strongest businesses, and it was an important part of Disney’s plan to build its streaming business in India.

Disney+Hotstar has been struggling to retain its paid users. Banking on the love of cricket in India, the company saw its paid subscriber growth scale to a record 61.3 Mn at the end of the quarter ended September 2022. 

As JioCinema began streaming the IPL for free, Disney+ Hotstar saw subscribers leave in droves. Facing challenges in retaining paid subscribers currently, Disney+ Hotstar experienced a surge in paid user growth to a peak of 61.3 million by the end of the quarter in September 2022. However, the strategy of streaming IPL for free on JioCinema led to a significant exodus of subscribers from Disney+ Hotstar. As of July 2023, the paid user base plummeted to 40.4 Mn.

The streaming platform has been struggling to maintain its leadership position due to a combination of factors, including the absence of high-quality English content and limited variety in its offerings, contributing to the decline in subscriber numbers, while Reliance’s JioCinema is scaling up rapidly. 

Disney Star also undertook a massive internal reshuffle earlier this year. As per Disney Star, the changes will allow the company to streamline its revenue, marketing and operations functions.