Companies
The curious case of Disney’s 30% stake in Tata Play
Summary
- Disney wants to sell its stake in Tata Play, but the Tata Group is showing no interest in buying
- Reliance Industries, with which Disney is merging its local unit Disney Star, doesn't seem interested either
MUMBAI: For the Walt Disney Co., a 30% stake in Indian DTH (direct-to-home) player Tata Play, which it inherited as part of its global purchase of Rupert Murdoch’s 21st Century Fox assets, has become an albatross around its neck.
Disney has been keen to sell its stake in Tata Play (erstwhile Tata Sky) to joint venture partner Tata Group. But there was one problem: the Tatas refused to buy.
Last week, Bloomberg reported that the Tata Group had agreed to buy Disney’s stake in the DTH arm at a $1-billion valuation. However, informed sources close to the group have confirmed to Mint that nobody has shown any interest in buying the stake, neither Tata Group nor Reliance Industries Ltd, with which Disney is merging its local unit Disney Star.
“The fact is that Disney doesn’t want anything to do with the distribution business. That’s not their core, and they have been seeking an exit since they acquired the stake following the purchase of the Fox assets," said one of the persons on condition of anonymity. “While they have approached the Tata Group multiple times, there is no interest to invest or buy back from this side."
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Walt Disney, a global entertainment behemoth with operations spanning films, TV networks, theme parks, consumer products, and video streaming, does not possess stakes or financial interests in any distribution company elsewhere.
Email queries sent to the Tata Group, Tata Play, Reliance Industries and Disney Star did not elicit any response by press time.
The Viacom-Disney merger
The stake in Tata Play is outside the proposed $8.5-billion merger between Reliance Industries-owned Viacom18 and Disney’s local business, announced in February this year.
As part of the deal, Disney will transfer all its India assets and employees — except its stake in Tata Play, its consumer products business, and VFX studio Industrial Light & Magic (ILM)—to its wholly owned subsidiary Star India.
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Post the merger, Reliance will effectively control the JV. It will have a direct stake of 16.34% in the company, while its step-down subsidiary Viacom18 will have 46.82%. Disney will own 36.84% of the JV.
The IPO angle
To be sure, Disney hoped to exit Tata Play via a public listing of the company’s shares and a partial stake sale to strategic investors. In fact, Tata Play had in 2020 appointed corporate law firm Cyril Amarchand Mangaldas (CAM) to advise on the initial public offering (IPO) and subsequent listing.
It was only in November 2022 that the company made a confidential pre-filing of the offer document for its IPO with market regulator Sebi, under the new rules. However, the company has not yet moved on it as the valuation has dropped to around $1 billion from $3 billion in 2019.
A second person said that there were at least three instances — in 2013, 2016, and 2019—when the Tata Play promoters had mulled IPO plans before shelving them.
The creation of a DTH leader
The Tata Group and Murdoch-owned Fox first entered into an 80:20 joint venture in 2004 to launch the DTH company. Later, in 2008, Singapore’s Temasek Holdings acquired a 10% stake in Tata Sky from the Tata Group for around ₹250 crore.
Fox, interestingly, had picked up only a 20% stake in Tata Sky, because the FDI policy at the time capped foreign holding in the sector. While Indian government regulations now allow for 100% foreign direct investment (FDI) in the DTH sector, they restrict shareholding by a broadcaster entity/broadcaster (in this case, Disney) into a DTH company (in this case, Tata Play) to 20%.
However, in 2009-2010, DIPP issued a press note, where it defined Indian ownership and control regulations in a way that if a foreign company invests through an investor company that has Indian ownership, the investment will be considered as Indian.
Using the new regulation, Fox and Tata Group formed a new investor company, TS Investments, which acquired a 20% stake in Tata Sky. As Tata Sons owned a 51% controlling interest in TS Investments, it was considered an Indian company, and Fox obtained an additional indirect stake of 9.8%.
Though the press note or the policy nowhere mentioned that the foreign company could increase its stake in DTH, as Fox received approvals from the I&B ministry, it was never challenged. However, the additional 9.8% stake has been an issue as several legal experts argue it may breach the cross-media ownership norms stipulated in the DTH licensing guidelines.
Over the past few years, the Information & Broadcasting Ministry has issued several notices to Tata Sky, requesting details on its shareholding structure and clarifications concerning potential “violations" of DTH licensing rules.
