It is now official – The Indian Satellite television giant DishTV, announced that it came to an agreement to merge with its major competitor Videocon D2h. The united company will be named DishTV Videocon Limited and will serve 27.6 million households in India out of 175 million households connected to television broadcasts. As in the case of VDTH when it was separate, the united company also has a tremendous growth potential in the years ahead, and since the merger transaction will be through shares we can continue to enjoy the exposure if we’d like.
As mentioned above, as part of the deal DishTV will issue 857.791 million new shares for VDTH shareholders, so that each shareholder will receive 2.021 new shares of DishTV for every VDTH share he currently holds. As an ADR shareholders in the NASDAQ, once the merge is completed we will also receive GDR shares of DishTV to be traded at the Luxembourg Stock Exchange (Here’s a link to the share’s page). Anyone who still wants to receive DishTV shares that are traded on stock exchanges in India (I do not recommend that since it is very difficult for foreigners to trade in India) would have to specifically request that from his broker. DishTV has hinted in the past that it wants to register its shares for trading on the NASDAQ as well. Hopefully that will happen and we will be able to continue to invest in it in Wall Street.
DishTV shares are currently being traded at a price of 87.35 Rs and a market capitalization of $1.38 billion, so the transaction, for VDTH, reflects a market value of $1.1 billion or $10.5 per share. This reflects VDTH an EV/EBITDA of 11.5, 27% higher pricing of DishTV (a multiple of 9.08). VDTH sells itself too cheaply in my opinion, but it is still higher than its purchasing value for the portfolio.
The transaction is expected to close in the second half of 2017 after regulatory approval in India, so many things can still change until then. This is probably the reason that VDTH is still traded at a lower price than the price reflected by the deal. As the closing date approaches and the value of the deal becomes clearer (as stated, it depends on the DishTV share price), we are likely to see VDTH rise closer to the transaction price. Meanwhile, we’ll wait patiently and continue to hold the stock since it has 18% upside to the deal current price.