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Dish TV has decided to merge its business with Videocon DTH, a Nasdaq-listed company, and the deal is expected to be completed before December 2017. Since this all stock buyout is happening at a close to 34% premium to Videocon D2H’s share price, it will result in almost a 45% dilution in Dish TV investors’ holdings. Once the agreement is inked, Essel Group will hold a 36% stake, Videocon D2H 28% and rest of 36% in the merged entity.
Analysts’ views
The merged entity will be twice as big as its nearest rival, giving it a huge bargaining power with ad and content players, and this has made Dish TV analysts’ top pick.
Buy: 25
Sell: 3
Hold: 1
While Dish TV will remain listed in India, Videocon D2H’s shareholders will have to convert their holding either to Indian shares or to Dish TV Global Depository Receipts, listed in Luxembourg. The merged entity, Dish TV Videocon, will have a joint management structure with Jawahar Goel as its Chairman and MD and a vice-chairman and deputy managing director nominated by Videocon D2H shareholders.
Though Dish TV’s stock price remained subdued after this announcement, there are many long-term benefits that will arise out of this merger. There is limited overlap in the customer base of Dish TV and Videocon D2H, so the merged entity will hold a significant market share.
Though Dish TV is the largest DTH operator in India—around 22% market share—it was facing a tough competition from players such as Videocon D2H, Airtel, Tata Sky—18% market share—and Sun Direct with around 15% market share. The merger changes the dynamics completely with the merged entity’s making constituting 40% market share—more than double that of its nearest competitor. Its market share in overall distribution platform, including cable TV, will also zoom to 16%. The merged entity will be able command better bargaining power with advertisers, content providers and hardware procurement owing to its market share. Operating leverage also should improve because sales and general administrative expenses will get spread across a larger base.
Proposed merger with Videocon D2H makes Dish TV stock analysts' top pick - The Economic Times
