Disney gets second mouse role in Reliance show

Not my problem. Disney boss Bob Iger is getting some relief. Walt Disney is merging its India business with part of Mukesh Ambani's Reliance Industries and its Viacom18 unit to create a powerful $8.5 billion television and streaming empire. Despite a knockdown valuation, it lets the media boss focus on the bigger picture.

Iger has big problems to face at the House of Mouse. The U.S. company’s stock price is 17% lower than when he first stepped down as CEO in 2020. Since returning to the job in 2022, he has been locked in battle with activist investors. Trying to fight off a big tycoon to turn around a still insignificant part of its global business is a distraction he can do without.

The deal is a steep climb down for Disney. Its 37% stake in the combined entity works out to $3.1 billion. That’s lower than the $4.5 billion Breakingviews calculated in October for the enterprises' worth, and much lower than the $16 billion enterprise value analysts at Elara Capital ascribed to it when Disney took over the assets in 2019.

Over the past couple of years Reliance has forced Disney into costly missteps. First it wrestled away streaming rights for Indian Premier League cricket and effectively led the U.S.-based company to overpay for broadcasting the tournament. Meanwhile Sony’s failed deal with Zee Entertainment - a similar merger of Indian media assets - makes it unlikely Disney will receive $1.4 billion in payments for cricket broadcast rights it tried to offload to Zee. It's unclear how that convoluted transaction impacted the final valuation of the joint venture with Reliance.

Still, owning a part of the enlarged entity will give Iger a second shot at the fast-growing Indian market. The new business will be able demand better rates from advertisers and slash production costs that keep streaming in the red. Disney is the latest global name to relegate itself to a bit part alongside the Ambani family, one of the country's most powerful. Nonetheless, that is an acceptable outcome given that the second mouse usually gets the cheese.

Context News

Reliance Industries and Walt Disney on Feb. 28 announced a binding agreement to merge their India TV and streaming assets. The deal values the combined entity at 704 billion rupees, roughly $8.5 billion, on a post-money basis, the companies said in a joint statement. Reliance Industries will inject $1.4 billion into the merged entity at closing. Disney will provide a content license to the joint venture which, the companies said, will have over 750 million viewers across India. Reliance, Viacom18 and Disney will own 16.3%, 46.8% and 36.8% of the joint venture respectively. Viacom18 sits within the Reliance group. Nita Ambani, wife of Reliance boss Mukesh Ambani, will be chair of the combined entity, and Uday Shankar, a former top Disney executive, will be vice chair. Disney said it expects to record non-cash pre-tax impairment charges in connection to the transaction estimated to be between $1.8 billion to $2.4 billion.