Anil Ambani's Reliance MediaWorks yesterday announced an offer to buy a further 62% shareholding in Indian multiplex operator Fame India for Rs1.8 billion ($39 million). Fame India has been in play since early this month when multiplex operator Inox group, which is controlled by Gujarat Fluorochemicals, announced a friendly deal to acquire control of Fame India.
On February 3, Inox announced that it had acquired a 43.28% stake in Fame India, from its founders, the Shroff family, for Rs660 million. The deal translated to a per share price of Rs43.7, which was about where Fame India's shares were trading on India's National Stock Exchange at the time. Inox operates 30 properties with 109 screens and a seating capacity of 31,401 across 21 Indian cities. The Inox-Fame combine will jointly operate 55 multiplexes with 204 screens and a capacity of 57,888 seats.
Just two days later, Inox acquired another 7.21% in Fame India at a price of Rs50.75 per share, through a block trade on the Bombay Stock Exchange, taking its total holding to 50.5%. Both buyer and seller alluded to the benefits of consolidation in a written statement announcing the deal. The acquisition of shares by Inox triggered a general offer to Fame India's minority shareholders. But before Inox could launch its offer, Reliance MediaWorks has entered the fray.
Reliance MediaWorks told media that, at the time Inox had announced the initial deal, Reliance had offered the Shroffs a higher price of Rs80 per share for their stake and that it did not understand the decision of the Shroffs to sell to Inox. It also highlighted that minority shareholders of Fame India were being disadvantaged by the Shroffs' decision to sell their stake to Inox as the free-float was also being offered the same Rs50.75 per share that Inox paid for its acquisition of 7.21%. Reliance MediaWorks proceeded to accumulate a 12% stake in Fame India through purchasing shares on the open market.
Anil Ambani actively entered the telecommunications, media and technology sector in the early part of last decade after he and his brother Mukesh Ambani divided the existing Reliance empire they inherited from their father, first-generation entrepreneur Dhirbubhai Ambani. Anil Ambani inherited the telecommunications business Reliance Communications.
In 2005 Anil Ambani acquired a controlling stake in media and film services company Adlabs Films, and then in 2009 changed the company's name to Reliance MediaWorks. Reliance MediaWorks currently operates the Big movie theatre network which spans 500 screens spread across India, US, Malaysia and the Netherlands. For the first three quarters of fiscal 2010, Reliance MediaWorks earned a total income from operations of $44 million on which it posted an Ebitda of $8.5 million.
Reliance MediaWorks has now decided to turn more openly hostile in its desire to control Fame India and has taken its offer directly to minority shareholders. It is offering Fame India shareholders Rs83.40 a share, a 64% premium to the offer of Inox, for a 62.08% stake in Fame India. Reliance MediaWorks is making the open offer in concert with group company Reliance Capital.
With Inox already in control of 50.5% of Fame India, it is not immediately clear what the end game for Anil Ambani is. It is possible that he hopes Inox group may decide to tender their shares to him at the high price he is offering, but it is also possible that he intends to ensure the acquisition becomes more expensive for Inox, increasing their cost of capital on the deal. Fame India shareholders not surprisingly welcomed the bidding war and the shares gained 5% in trading yesterday to touch Rs88, making the original Inox offer of Rs50.75 effectively a non-starter. Adding further intrigue is the fact that Reliance Capital owns a 9% stake in Inox, as per the latest NSE shareholding pattern filing of Inox on December 31 last year.
The deal pits a number of domestic Indian investment banks against each other. Reliance MediaWorks and Reliance Capital are advised by ICICI Bank's investment banking subsidiary ICICI Securities. Inox is advised by Vallabh Bhansali's local firm Enam Securities. Fame India was advised on the sale to Inox by the investment banking division of Indian private-sector bank YesBank.