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Liberty Media in talks for stake in Airtel DTH arm; Bharti eyes valuation over $1.5 bn

MUMBAI: Bharti Airtel is in talks with American media and communications giant Liberty Media to sell a stake in its unlisted direct-to-home business, as compulsory digitisation and higher foreign ownership limit drive firms to seek capital and market reach.

Two people familiar with the development said Bharti informed three private equity firms knocking on its doors that it was keen on selling a larger stake at a higher valuation. A strategic player with deep pockets will be better bet than private equity funds, the funds have been told.

These PE funds were in independent discussions with the company to buy a minority stake in the DTH business, which commands an 18% market share in subscribers. The likes of Temasek, Carlyle, ICICI Venture and American media company Comcast had shown interest in the company so far.

The Bharti-Liberty talks are now focused on the American company buying 25% in the DTH unit.

Bharti officials are believed to be pushing for the unit to be valued at about $1.5 billion. “The asking price of the company was too high for a financial sponsor to pay and hence, at that valuation, a strategic player is what the company looking at,” said a managing director of a global private equity fund who had held initial discussions with the company.

Another investment banker representing a global PE fund said the company was looking at a valuation of more than $1.5 billion. “As a company policy, we do not comment on market speculation,” a Bharti Group spokesperson said in an email response. Liberty Media’s investor and media department did not respond to a questionnaire mailed on Wednesday to an address sourced from its website.

“The DTH industry is in severe need of funds and investments from both financial and strategic investors. The industry, which is already reeling under multiple taxation, shortage of transponder capacity and subsidising set-top boxes, this deal will significantly help in the sustenance of the business,” Smita Jha, leader-entertainment & media practice at global consultant Pricewater Coopers, said.

Indian DTH companies, dominated by Dish TVBSE -0.67 % with a 27% market share, have partnered with strategic investors and private equity funds or tried a public offer to raise capital. PE fund Apollo owns a minority stake in Dish TV; Tata had partnered with Rupert Murdoch’s Sky TV and Singapore sovereign fund Temasek International. Videocon D2H had filed a prospectus with the market regulator to raise funds through a public offer. In February, local PE fund Tata Opportunities Fund (TOF) picked up a minority 5% stake in Tata Sky.

The government’s compulsory digitisation drive across metros drove the Indian DTH market to double-digit growth, making a dent into the cable & satellite market but pushing up subscriber acquisition costs and increased churn rates. “DTH operators are expected to treble to over $5 billion by 2020 from $1.5 billion now as mandatory cable TV digitisation would help DTH players expand their subscriber base,” said Media Partners Asia, a Singapore-based Pay TV research firm, in a report released in April 2013.

“The subscriber base is expected to grow to 76.6 million by 2020.” According to the report, the four large players — Dish TV, Tata Sky, Videocon and Bharti DTH — command 88% market share. Liberty Media, owned by John C Malone, shot to prominence in the middle years of the last decade after amassing an 18% stake in Rupert Murdoch’s News Corporation, heightening speculation about a takeover battle between the two feisty entrepreneurs. But Malone swapped the stake in exchange for a presence in DirectTV even as the rumours about a clash with Murdoch never died down and have instead been resurrected in the past few days on reports of a Malone bid for UK-based Virgin Media.

Liberty Media today owns interests in a broad range of media, communications and entertainment businesses. Besides owning a minority stake in Time Warner and Viacom, it has interests in AtlantaBSE -4.19 % National League Baseball Club, TruePosition Charter Communications, Live Nation and Barnes & Noble. “Given the digitisation push in the country, the DTH business is maturing and is headed towards higher growth and profitability,” says Rajesh Jain, executive director, KPMG. “The subscription market is a very attractive one for international investors, both financial and strategic, and we will see a lot of them rushing to India.”

Source: The Economic Times

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