15 deals have given Mukesh Ambani’s ₹8.5 trillion Reliance Industries a distinct makeover

Reuters

  • Reliance has closed 26 deals in the last 24 months, nearly half of which have been in the telecom and media space.
  • The new businesses span from music streaming apps to cable networks to telecom software and hardware units.
  • Out of a total investment spend of $5.3 billion in the last five years, a staggering 79% has been allocated towards deals in the telecom sector, according to data compiled by Morgan Stanley.
Reliance Industries’ (RIL) mergers and acquisitions division has had a pretty busy go of it as of late. In the last 24 months, the company, India’s largest by market capitalisation, has closed 26 deals.

Of the 26, 15 deals have contributed the most both in terms of deal value as well as in redefining RIL as a company. Some of the new businesses bought over by RIL span from a media production house to music streaming apps to cable networks to telecom software and hardware units.

These 15 deals include a currently-stalled bid to buy Reliance Communication’s spectrum and the sale of two energy assets, which were part of the company’s mainstay business up until then.

Up until a few years ago, RIL was a predominantly an energy major. While oil refining and petrochemicals remain the cash generating units, Ambani is expanding his empire with an eye on future. As he has often said in the recent past, “data is the new oil.”

Out of a total investment spend of $5.3 billion in the last five years, a staggering 79% has been allocated towards deals in the telecom sector, according to data compiled by Morgan Stanley.

The rerating of the company, as a technology and consumer play, though on the cards, will be a gradual process that will happen over the next few years, Vinod Sharma, head of capital markets strategy and the private clients group at HDFC Securities told the Economic Times.

Concurrently, Reliance’s share price has risen dramatically - capping a 46% jump since mid-March 2018 - signifying investors’ confidence in the prudence of these deals.



Let’s look at some of the recent deals and what they add to the company’s prospects.


Month

Company

Transaction

Deal Value

June 2017

Balaji Telefilms

Bought 25% stake

$64 million

February 2018

Eros

Bought 5% stake

$150 million

March 2018

Saavn

Bought 41% stake

$122 million

June 2018

Radisys

Bought 100% stake

$74 million

October 2018

Den Networks

Bought 59% stake

$630 million


Hathway Cable

Bought 51.3% stake




Reliance’s most notable recent acquisition in the telecom space was the purchase of a 59% stake in Den Networks and 51.3% stake in Hathway Cable - both multiple system operators (MSO) - in October 2018 for a total deal value of $630 million.

The move was specifically geared towards making Reliance the main player in the cable TV and broadband market and assist in the rollout of Reliance Jio’s fixed broadband service - GigaFiber.

The reduced competition in the space is expected to hurt broadcasters, who will have lesser negotiating power when it comes to finalising subscription revenue packages.

Another notable deal was the $74 million acquisition of a 100% stake in Radisys, a US telecom equipment manufacturer, in June 2018. The deal will help Reliance Jio build its 5G and Internet-of-Things capability.

Reliance’s bid to boost its technology offerings is also indicated in deals with smaller amounts. It’s taking a bet on relatively nascent companies and technologies as part of a larger plan to integrate complementary services under its telecom and media business - becoming a software developer and hardware manufacturer in the process. For example, it spent $7 million to buy a minority stake in the US-based KaiOS Technologies, the company that produces the software for its JioPhone.

Reliance Industries also closed a deal with Reliance Communications in December 2017 to purchase ₹200 billion worth of the latter’s spectrum assets . However, Mukesh Ambani’s lifeline to his brother Anil was suspended at the end of last year as Reliance Jio refused to accept liability for RCom’s existing spectrum dues.

Meanwhile, Reliance has spent an additional $566 million on acquisitions in the media space.

In March 2018, the company signed a deal to acquire a 41% stake in Saavn, a music streaming service, in lieu of a subsequent launch of its own streaming platform. In February 2018, it bought a 5% stake in Eros, an Indian film distributor and production company, for around $150 million. In July 2017, Reliance also bought a 25% stake in Balaji Telefilms for $64 million. The deals are aimed at the production and distribution of content for Jio subscribers.


Aside from these deals, Reliance’s existing retail business is also in the process of expansion, ahead of a possible IPO.

And Ambani is making serious moves in this space too, with the recently announced foray into e-commerce. The company plans to increase its store count of Trends fashion stores nearly five times to 2,500 outlets by 2024.

Very soon, it may be difficult for any one sector analyst to evaluate the company.


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