Star TV sells, Zee consolidates

The five-year partnership between Star TV and Zee Telefilms that even went through a court battle is over at last. The two media companies have signed a deal ending almost six months of mutual recrimination over broadcasting rights.

The agreement provides for Zee Telefilms to acquire Star TV's 50 per cent stakes in the three joint ventures, Asia Today Limited of Hong Kong, and Patco and SitiCable, for cash and a small shareholding in Zee Telefilms. The total value: $296.51 million.

Zee Telefilms chairman Subhash Chandra says he hopes the deal will pave the way for creation of an Indian media conglomerate. Star TV officials in India acknowledged that the two sides will now be able to work better together in an environment free of non-competitive clauses.

While Asia Today is the broadcaster for the three Zee channels, Zee TV, Zee News and Zee Cinema, Patco is a programme provider for Zee Cinema. The third company, SitiCable, runs a cable network.

Both sides stand to gain from this deal. For Zee, it will mean:

• Full ownership of the advertisement revenues of Asia Today, estimated at an annual Rs 400 crore. It earlier received only half the revenue.
• Full integration of its media activities, covering broadcasting, production, distribution and marketing, after gaining control of the three joint venture companies.
• Increased asset value by becoming a fully integrated company with exclusive ownership of different divisions of business.

Star too will benefit:

• It will be freed from the "non-compete" clause in the joint venture agreement, a factor it claims has been impeding its growth.
• At the same time, it will hold a stake in Zee Telefilms and thereby gain a return from Zee's performance.
• It will be able to wipe out at least a part of its losses made in India with the cash that it gets from the sale.

Zee Telefilms hopes to undertake the restructuring in two stages. In the first, it is expected to increase the issued capital of the company to Rs 40 crore from the current Rs 19 crore. This will enable it to acquire a 100 per cent stake in Zee Multimedia Worldwide, which actually holds the group's stake in Asia Today.

In the second stage the company will make a preferential allotment of 1.6 million shares worth Rs 645 crore to Star TV at Rs 4,000 per share. The company will also issue about 4 million shares worth Rs 1,600 crore through another preferential allotment to a strategic partner. A part of the funds generated from the second allotment will be used to pay the cash component of the deal with Star TV.

With the restructuring, Subhash Chandra will hold 65 per cent of the company, while Star TV will get 4 per cent. Foreign institutional investors, mutual funds and the public will together own 21 per cent.

While signing the partnership agreement on 17 September 1994, Zee and Star TV had visualised a media behemoth in Asia through a possible merger of their activities at a later date. However, their relations soured when Star TV launched its Hindi language programmes on Star Plus in 1996.

Zee said Star had violated the agreement by introducing Hindi programming. The agreement had provided that "each party and their affiliates shall not carry on any business which competes with the other's business or group company either during the term of this agreement or two years thereafter", according to Zee.

Star TV, however, did not budge. Its version of the agreement was that it did not prohibit beaming Hindi programmes but only restricted the programming to a particular percentage. Yet, despite their dispute, market compulsion forced the two sides in 1998 to consider the possibility of a merger. But the negotiations failed. Then Subhash Chandra filed a case against News Corporation and News Cayman Holdings in London's High Court of Justice, seeking an order of restraint against Star TV from broadcasting Hindi programmes on the Star Plus channel.

Analysts have described the agreement selling Star TV's stakes in the three joint ventures as an Star TV owner Rupert Murdoch's acknowledgement of Mr Chandra as a media entity to reckon with. Star TV's acceptance of a stake in Zee Telefilms is added indication of News Corp's faith in the future of the Indian company.