The markets seem to be giving a thumps up to Balaji Telefilms’ decision to review the merger with Nine Network Entertainment India (NNE), a unit of Kerry Packer promoted Channel Nine.
The proposed merger effectively would mean an equity dilution of 20% for Balaji Telefilms. At the market price of Rs 144 the value of NNE’s stake could be valued at Rs 364 m against Rs 340 m worth of assets supposed to be brought in by Channel Nine. So far so good. However, the merger, which was declared on the day of Balaji’s listing on the bourses was not received well by analysts and investors as it was viewed as an exit route for strategic investors in the company. Exit route from Balaji.
The merger was supposed to enable Balaji to become a preferred vendor to DD metro’s Nine Gold supplying atleast 7 hours of television software every week on prime time slots. However, with Channel Nine finding it difficult to renew its contract with Doordarshan for the prime time slot it doesn’t make sense for the company to part with 20% stake in the company.
Assuming the equity dilution does not take place, Balaji Telefilms is trading at 9 times its expected earnings for FY02. The company has now emerged as the number one television software company specially with overwhelming success of two serials on air, which includes ‘Kyonki saas bhi kabhi bahu thi’ and ‘Kahani ghar ghar ki’. Consequently, the bargaining power of the company with the broadcasters has increased considerably. The company already has a rich content library of more than 1600 hours, which has a very high re-run value. The company can also recycle its library re-adopting and re-making its highly successful Hindi serials in other regional languages (where it has a strong presence) with marginal extra cost.
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