Reliance Industries acquires Analjit Singh’s stake in East India Hotels

Mukesh Ambani-led Reliance Industries has acquired Max Group chairman Analjit Singh’s 3.73% stake in PRS Oberoi promoted East India Hotels (EIH) Ltd that owns and operates hotels under The Oberoi and Trident brands.

Singh’s investment firms Gaylord Impex and Pivet Finances sold all the 21,315,000 EIH shares in a bulk deal to RIL subsidiary Reliance Industries Investment and Holding Pvt Ltd at Rs90 a piece valuing the deal to Rs191.83 crore. RIL’s current holding has thus increased to 18.53% from 14.8% earlier.

The increase in RIL's shareholding in EIH however does not trigger an open offer because, in August last year, the Securities and Exchange Board of India (SEBI), raised the initial trigger threshold for an open offer, from the 15% to 25%. The market regulator also increase the open offer size from 20% to 26%.

As a result acquirers will now need to make mandatory open offer for further 26% stake from the public shareholders after buying 25% under a private sale. The minimum stake that an acquirer can now obtain in a target company after the open offer if fully subscribed would be a controlling 51%.

With Ditto TV, Zee eyes a game-changer

My colleague Beryl Menezes co-authored this story which appeared in DNA Money edition on Thursday, March 01, 2012.

Zee New Media, the digital arm of Zee Entertainment Enterprises Ltd, is set to change the way television entertainment is consumed in India.

It has introduced Ditto TV, an over-the-top (OTT) television distribution platform, to provide paid entertainment content on portable mobile devices.

Initially available in cities like Mumbai, Delhi, Pune and Bangalore, Ditto TV offers ‘live’ television channels and on-demand video content on devices including mobile phones, tablets, laptops, desktops, entertainment boxes and connected TVs.

Punit Goenka, managing director & CEO, Zee, said with Indian consumers increasingly becoming mobile, smartphones and tablets have really changed the way people work, play or view entertainment.

“The need for mobile entertainment and news has only increased over the last few years. Globally, mobile television has witnessed overwhelming reception. In fact, a recent research by Nielsen said that entertainment and mobile television is potentially showing signs of becoming the first stream of choice for the consumers,” he said.

While the company did not share any investment details, Goenka said, “We have made significant investments in this initiative and will continue doing so in the years to come. Over the next one year, we are targeting a subscriber base of one million active users for mobile TV and are aiming to capture a considerable pie of the six million active 3G audience in India. In the long term, we envisage new media division (which includes Ditto TV), contributing approximately 10% to the total revenue of Zee.”

On the business arrangement with other TV channels that are being distributed on the Ditto TV platform, Goenka said, “We have modelled our business purely on revenue share. It is very similar to what is being followed already in terms of commercial arrangements with broadcasters in the direct-to-home space.”

Ditto TV will initially offer 21 channels offering premium content across GEC, sports, lifestyle, regional, news and other genres. Consumers have a host of subscription options (prepaid cards), starting with `21 per month for a single channel, `49 per month for three channels going up to platinum pack priced as `2,499 per annum for the entire bouquet. It has entered into distribution pacts with retail channels like Croma and Vijay Sales.

Vishal Malhotra, business head - digital media, Zee, said, “We are initially launching in four cities but as 3G grows we will expand to other cities and potential rural markets. The channel offering will be increased to 100 in the next 6-8 months. In another two months, we plan to get into music and movies domain, too.”

The company sees increasing internet penetration across towns, handset manufacturers bringing in new devices with larger and better screens and social media integration increasing demand.

“We are just warming up to 3G. However, devices like tablets and smartphones being in great demand already, mobile TV is bound to see compelling growth numbers,” said Goenka.

The company is simultaneously planning to introduce Ditto TV in countries including the UK, UAE, Australia and New Zealand. It plans to roll out the service in the US in a few quarters.

Ditto TV has partnered with Siemens Communication and Media Technology to develop a strong technology platform that will offer adaptive streaming.

BSNL, Zenga and Apalya Technologies are among the few others that offer mobile TV in the Indian market.

Zenga, a free platform, has a 65-70% share of mobile TV market in India. It says its revenues grew 250% over the last year since the launch and expects it to grow two-fold annually. Mobile TV currently makes up 1% of the total entertainment space.

A Zenga spokesperson said about 90% of its revenues come from 2G users and expects 4G and LTE technologies to give a push to the segment.

Prime Focus to steer AP’s digital drive

This story first appeared in DNA Money edition on Saturday, February 25, 2012.

Prime Focus Technologies (PFT), an Indian content operations solutions provider, has secured a huge contract from The Associated Press (AP) that involves digitisation of the global news network’s unique video archive. AP is looking to take the archive to a whole new audience across the digital spectrum. The project is part of the news agency’s broader strategy of multimillion-dollar upgrade of its video business.

Ramki Sankaranarayanan, CEO, Prime Focus India, and president and CEO of Prime Focus Technologies Pvt, said the fairly large project was part of a public tendering process wherein AP had invited bids from across the globe. “The tender process was kick-started in July last year and we won the competitive process. It’s a large tender though I will not be able to share financial details owing to the non-disclosure agreement (NDA),” he said.

For the PFT management, this deal opens up a very significant business opportunity as several other big networks around the world would be looking to digitise their catalogue as well. “It is a very innovative and cost effective way of dealing with digitisation of content / archive and we are bringing in a lot of value addition to the table. We are expecting this development will drive a significant amount of project traffic to our facilities,” the CEO said.

PFT’s global competitors in this space include the likes of Technicolor and Deluxe Entertainment, among others. However, it could not be ascertained whether the two companies had taken part in this tendering process.

AP’s digitisation exercise is largely fashioned to let the company switch its entire newsgathering, production and distribution system to the high definition (HD) mode. The trigger, AP officials said, was primarily to meet technical, editorial and business requirements of its global customers in this digital age.

AP’s film and tape archive contains around 70,000 hours worth of footage, including more than 1.3 million global news and entertainment stories, in 16 mm film and videotape, dating back to the beginning of the 20th century.

PFT will be driving this project using its proprietary content operations platform and supporting services solution called CLEAR. The digitisation work will be undertaken from its facilities in the US (New York) and UK (London), in addition to Indian facilities operating out of Mumbai and Bangalore.

“Currently, we have a team of over 550 developers writing bespoke scripts to support the innovative workflows required by this project. We will also utilise our own cloud technology for supporting services,” said Sankaranarayanan.

According to Alwyn Lindsey, director - international archives at AP, the company was looking for a partner with the ability to handle their global business needs and a project of this scale and thus, PFT was picked up. “Today’s market is driven by giving customers breadth of content, ease of access, and value for money. While we have already digitised around 10% of our archive, it has been a top priority to get all of our most saleable archive footage online and make it available to our customers, wherever in the world they may be,” said Lindsey.

The stakes are high. News networks like CNN, CBS, Al Jazeera typically tend to deal in their content in a unique way, which explains why the need for content is going through the roof. “All these networks now have a mechanism to fulfil that requirement in an effective manner,” Sankaranarayanan said.

In fact, PFT has already been working with a host of Indian and international entities on digitising archive content.

Some of the organisations currently using their service include British Movietone Library, British Film Institute, Imperial War Museum, IMG, Board of Control for Cricket in India (BCCI) and Eros International.

On the possible size of this market in India or globally and the extent of business PFT will be looking to tap going forward, Sankaranarayanan said, “I do not know if there is any formal research done on the market size.” PFT’s internal estimates, however, indicate that billions of dollars are spent on digitisation. “While this is a split between print and moving images, it is the latter where we see a significant growth happening in the years to come,” he added.

PFT will have to deliver the entire digitised archive and create nearly 4 million new assets in 18 months. The scope of work will involve digitising 3,000 hours of film with an average of 60 news stories per hour (i.e. creating a total of 900,000 files) and 29,000 hours of video with an average of 20 news stories per hour (i.e. creating a total of 2,900,000 files). The newly digitised content will appear daily on AP Archive’s website which will be facilitated by a dedicated connectivity between PFT and AP.

Agri growth scorcher drives private equity activity

This story first appeared in DNA Money edition on Saturday, February 25, 2012.

The vast Indian agricultural market and a pick-up in related activity have triggered a surge in private equity (PE) placements and merger and acquisitions (M&A) in this sector over the past one year.

Pundits believe there is still so much of growth upside left. Raja Lahiri, partner - transaction advisory services, Grant Thornton India, said agriculture as a sector is promising and there is a reasonably good private equity interest, especially in the segment like seeds. “Funds tend to chase businesses that address the bottom of the pyramid theme and investing in agriculture and related businesses do fit in to their investment theme,” said Lahiri. Agriculture and related businesses as a segment include the entire value chain of foods, agriculture produce, seeds, fertilisers, agri-technology, and agri-infrastructure.

While three deals have already been announced in the current calendar year 2012, industry experts see a lot many in the pipeline, which will get closed in coming quarters. Among deals that have already been concluded are Malabar Trading Co’s majority stake acquisition in Protect Nature Pvt, takeover of Hyderabad based Rohini Seeds by agro chemicals company Crystal Group and private equity investment by Song Investment Advisors in SV Agro Processing. Deal value of all these transactions have not been made public though.

Even the terms of trade appear to be gradually changing in favour of agri crops which basically mean the price of agri crops is increasing at a much faster clip than manufactured goods.

Analysing the key factors driving the trend, G Chokkalingam, executive director and CIO, Centrum Wealth Management, said it’s the highly populated countries like China, India, Brazil, Russia, South Africa that have logged the fastest economic growth in the last 7-8 years. “However, the size of cultivable land has only declined in this period. This has put tremendous pressure on agri crops as well as demand for food which is only rising. Interestingly, within India, the fastest growth is coming from the densely populated states like Madhya Pradesh, Uttar Pradesh, Orissa etc. So, on one hand, there is increase in food demand and cost, and shrinkage in cultivable land on the other.” He felt that climate variations will necessitate strong inputs for the agriculture sector in order to improve productivity. “Taking these factors into consideration, I feel the agri and related businesses will attract a lot of attention from investment companies. In fact, I see it as a major theme on the bourses in the next 2-3 years,” said Chokkalingam.

Another reason for increased attention from PE firms is that the size of these businesses has reached a certain scale in the last 3-4 years. Earlier, such businesses were too small and would only attract the start-up investors or investments from venture capital funds. Unfortunately, there weren’t many such investment entities in India, thus dampening growth and investments in this sector.

“The real growth capital story will start to unveil now because the sector itself has reached a certain scale ranging between Rs 60 crore to Rs 200 crore. Thus, it now makes sense for funds to look at investments of Rs10 crore to Rs 50 crore in such businesses. My sense is it will largely be growth capital PE deals that will dominate the market in the next couple of years. This is likely to be followed by a couple of buyouts though generally speaking, India is still not ready for such transactions, especially in the agri and related segment,” said Rajesh Srivastava, chairman and managing director, Rabo Equity Advisors (an agri-focussed fund).

IDFC Private Equity has also hopped on to the agri-business investment bandwagon by acquiring a significant minority stake by investing Rs 150 crore in Jaipur-based Star Agri Warehousing and Collateral Management. Girish Nadkarni, partner, IDFC PE, said, “The placement has been done through our $650 million IDFC PE Fund III.”

The funds will be deployed by Star Agro for expanding the warehouse network and creating a pan India network of allied post harvest management services. We are expecting the investment payback time frame to be 3-4 years from now.” He did not share precise details on their expected rate of returns though, “It would be in the same region as is the case with any standard internal rate of returns (IRRs) with PE investments,” he said.

Additionally, Bombay Stock Exchange (BSE) listed Onelife Capital Advisors Ltd is currently in the process of considering a proposal to acquire a group company Oodnap Agrotech Ltd (OAL) engaged in the agricultural and related business activities.

According to data compiled by Grant Thornton India, agriculture and related business segment attracted 14 M&As and 8 PE deals amounting to $586.56 million and $19.12 million respectively in the year 2011. The number was significantly higher in 2010 wherein the sector witnessed 26 M&As and 8 PE deals worth $354.73 million and $157.41 million respectively.

Srivastava said that the number of funds targeting this space has increased significantly vis-a-vis just a handful of sector-focussed firms in the past. “This is a good development for the sector because ultimately PE investors are seeing value in such businesses which will eventually help them expand better in the coming years. From the perspective of both volume and number of deals, 2012 will be better than 2011 for PE investments in this sector.”

In fact, Rabo Equity Advisors is expecting to close 3-4 fresh deals in the next couple of quarters and will raise a new fund as the existing corpus will get exhausted post the new placements. “The new fund will be launched by the end of this year. Precise details on the same will be finalised in over a couple of months from now,” said Srivastava.

PE investor in Ginger is a Tata Capital firm

This story first appeared in DNA Money edition on Thursday, February 17, 2012.

Indian Hotels Co Ltd (IHCL), the Tata group hospitality flagship, had last March announced Rs320 crore investment by Singapore based private equity firm, Omega TC Holdings Pte Ltd, into its subsidiary Roots Corp Ltd (RCL) that runs the Ginger chain of budget hotels in India.

The IHCL management had then said that Omega TC was chosen after discussions with a few PE players and the investment, which was to be made in various tranches till 2014, included buying out some of the existing investors in RCL.

Curiously, IHCL then was not willing to share any details about the ownership and other information on Omega TC. The IHCL annual report for 2010-11 also has no information about the ownership details of Omega TC.

It now emerges that the Singapore PE is an entity backed by Tata Capital, a Tata group company.

Responding to a DNA query during the third-quarter results about media reports on Tata Capital picking up stake in RCL, Anil P Goel, executive director - finance, IHCL, had said, “Omega TC is actually Tata Capital.” He, however, did not share any details on it.

A request for a meeting with the IHCL management to get a better understanding of the PE firm’s investment in RCL was denied.

Tata Capital, too, when approached, did not offer any comment.

Later responding to a DNA uery, the Tata Group media agency said, “Omega TC Holdings is an investment holding company of the Tata Opportunities Fund LP, a limited partnership fully subscribed by global investors. The Tata Opportunities Fund is one of the private equity funds sponsored by Tata Capital Pte Ltd, Singapore.”

Meanwhile, experts tracking the company development said proper disclosures should have been made about the PE investor into the IHCL subsidiary.

“To what extent is this investment transparent is something I fail to understand. What is its purpose, how was the transaction valued, whether it was done to set a valuation benchmark, or largely to give an exit to existing investors because no other investor is willing to come in, are questions that only the company officials can answer,” said a top official of a leading hotel chain requesting not to be identified.

The PE placement was also being viewed as paving the way for RCL’s initial public offering, which is likely to happen in the next couple of years.

During an IHCL annual general meeting in August 2010, Ratan Tata, chairman, Tata Group had responded to a shareholder query saying, “The Ginger hotel chain would be listed in the next couple of years, depending on a series of circumstances.”

Roots Corporation was set up in 2003 and currently operates 24 Ginger hotels across India. While a significant proportion of the Ginger portfolio is owned, there are a few joint projects like Ginger Rail Yatri Niwas (operated under PPP arrangement) and two management contracts in Manesar and Agartala.

The Ginger pipeline currently comprises 10 hotels under various stages of development including Ginger’s Mumbai debut at Navi Mumbai. These hotels are likely to add another 1,000 guest rooms to the existing portfolio.

Lemon Tree out to prove a point with business recast

This story first appeared in DNA Money edition on Monday, February 17, 2012.

Warburg Pincus-funded Lemon Tree Hotels has embarked on a major restructuring of its business with an eye on unlocking value.

The company plans to separate ownership and management of hospitality assets and is also weighing setting up a third-party hotel management company and introducing new hospitality brands.

Patu Keswani, chairman and managing director, Lemon Tree Hotels Pvt Ltd (LTHPL), confirmed the move to separate brand management from asset ownership. "It certainly is part of our long-term strategy. We will have a very clear division and I hope to do something specific even before our IPO, which should happen within a couple of years from now. To start with, we are planning to merge Red Fox into Lemon Tree and amalgamate the two. Eventually, we will have a company that will own both Lemon Tree and Red Fox brands, the management will reside there and so will a lot of assets," he said.

Lemon Tree is open to distinct identities for projects provided they "come with tax benefits," said Keswani.

"What it basically means is we will not downstream or move around any asset that will entail payment of duties, taxes and so on."

The company has 4-5 projects — with 100% asset ownerships — in its portfolio.

As a long-term strategy, the management is looking at aggregating them to create an asset company.

"It is an ongoing process, and we are in talks with lots of people to invest with us in the asset company. And as long as we own a majority of that company, we will be open to creating multiple asset companies," he said.

On the buzz about a Dutch pension fund coming on board as an investor, Keswani said "We are talking to many people, including investors from Europe. Nothing has been finalised yet."

And is Warburg is in the exit mode?

"Not at all," said Keswani. "We certainly are hoping that Warburg will stay as it has invested in the main company (LTHPL), which is both an operating as well as a property company."

Why is the company bringing in new investors then?

Keswani said the company has around six hotels that are with independent subsidiaries whereas LTHPL either owns 100% or a majority stake. "When we tie up with funds --- sovereign, pension or a private equity --- we may move some of our existing assets that are tax-friendly and we will have new hotels in these asset companies. So, right now, we have 3-4 companies that can loosely be termed as asset companies because they are downstream and pure assets," he said.

The company is also looking at creating a property company, though the timeframe will depend on when the new investor comes in. "It could take anywhere from the next six months to maybe 2-3 years, depending on when we partner with somebody (financial investor), the quantum of investment, the alignment and so on," said Keswani.

LTHPL is keen to keep a majority stake, while allowing the new investor in the property company to bring in at least `1,000 crore. It is likely the investor will secure a very small stake in Lemon Tree Hotels as well. "In fact, whatever conversations we are currently having with a few funds, the figure is in the neighbourhood of Rs1,500 crore," said Keswani.

Lemon Tree also has its eyes set on management contracts.

"It is going to be a step-down company where we will do joint venture with other people. It could also be a subsidiary of Lemon Tree where we will be managing hotels of other asset owners," Keswani said.

"We intend to do management contracts only in the mid-scale, upscale and deluxe categories. Thus, three new brands are currently being conceived and the work is at a very preliminary stage. The new brands will be with the management company and we should be ready to unveil them in another 3-4 months from now," he said.

The company is backing up its intent with some high-profile recruitments.

Murlidhar Rao, who was vice-president (operations) with Alila Hotels & Resorts in Singapore, has already taken over as the chief operating officer (COO) of its newly launched Lemon Tree Premier brand of hotels.

Similarly, Saurabh Nandi, shopper marketing manager - ASEAN, Procter & Gamble, operating out of Thailand, is expected to join as LTHPL's chief marketing officer by mid-March. Nandi will also be entrusted with spearheading new branding initiatives expected to be rolled out before June.

Thomas Cook says no piecemeal sale of company

This story first appeared in DNA Money edition on Friday, February 17, 2012.

Despite the financial stress faced by its UK parent, travel operator Thomas Cook India, which has been put on the block, on Thursday said the proposed sale is not a distress sale and the decision was taken based on the number of unsolicited expressions of interest received for the company.

Madhavan Menon, managing director, TCIL, said, “From the UK parent’s point of view, they clearly recognise that this is a business that is doing well and is a major player among the businesses present in this country. It is not a distress sale and unless the parent sees a value, a sale will not happen.” Menon said.

Menon said a detailed process being conducted by Credit Suisse was a two-staged one and is yet to begin. “We would try and complete the process quickly because when there is a stake sale it can lead to some amount of distraction from the business. And it is our intent to finish it (sale) at the earliest,” he said.

Menon said there would not be any piecemeal deal and Thomas Cook India will be sold as one piece. “At this stage, however, it would be speculative on my part to speak anything about
what the new owner would do with the business after having acquired it because we don’t even know who
the owner could be,” he said.

Reiterating his views on the Indian entity, Menon said that Thomas Cook India has operated independently of the UK parent, be it financially or commercially. For TCIL, foreign exchange is a major contributor to its overall business while it is the packaged holidays for their UK parent.

TCIL also said that the company management did not have a preference as to who the potential buyer would be as it entirely depends on what value the parent expects to obtain from such a sale.

“I don’t want to get into the expectations of the parent, because it is too early to speculate as to what they want. It is also driven by the fact that there are rules and regulations that govern the price, given that we are publicly-listed company. We are going through a process whereby there will be a price discovery and we will have to wait for that to happen,” he said.

To a query on whether TCIL would prefer a financial investor as a buyer who will retain the existing management as against a strategic buyer who may not, Menon said, “We have a successful management team and anybody who buys this business would obviously see some value in it because the team has built up this company over the last six years.”

The new buyer will have to negotiate the terms for the use of the Thomas Cook brand.

“The brand is available for a minimum 7 years and it will depend on what the bidders make of it and what value they appropriate towards it,” said Menon.