With the recent merger of Disney’s Star India and Reliance Industries Limited’s (RIL) Viacom18, corporate acquisitions in India’s entertainment industry have come under increased legal and regulatory scrutiny. In addition to changing the media environment in India, this $8.5 billion deal brought to light important legal issues that regulate such deals. Using the Reliance-Disney merger as a case study, this essay explores the framework of law, regulatory clearances, and antitrust consequences of corporate takeovers in the Indian entertainment sector.
CORPORATE TAKEOVERS IN ENTERTAINMENT INDUSTRY
Corporate takeovers are when a firm buys out or merges with another, usually to increase activities, create strategic synergies, or solidify market dominance. These kinds of deals are significant in the entertainment industry because they have the power to shape consumer preferences, rivalry in the marketplace, and cultural narratives.
Due to an increasing middle class, rising usage of the internet, and a multilingual viewers, the Indian entertainment business is one of the fastest-growing in the world. However, in order to maintain equitable competition and safeguard the interests of consumers, this expansion has also drawn regulatory attention. The Reliance-Disney acquisition is a prime example of the difficulties in negotiating India’s corporate takeover laws.
LEGAL FRAMEWORK GOVERNING CORPORATE TAKEOVERS
- Companies Act, 2013
The Companies Act 2013 provides a structured framework for the concept of mergers and acquisitions in India. Sections 230 to 232 of the Act provide for the procedural steps for the schemes involving mergers and amalgamations:
- Approval of the Scheme: Under Section 230 (6) of the act, it must be approved by at least 75% of the creditors and the respective shareholders of the company.
- National Company Law Tribunal (NCLT): The following scheme must be approved by this authority, as mentioned under Section 232 (1) of the act, making sure to follow all the statutory requirements
In the Merger of Reliance and Disney, the NCLT approved the scheme (CA(CAA)/64/MB-IV/2024) dated 30 August 2024. This approval was followed by extensive disclosures and adherence to the norms mentioned in the Act
- Security and Exchange Board of India (SEBI) Regulations
Any listed entity company shall comply with the SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations 2015. RIL, being listed, had mandated in its Regulation 37 that any entity involved in the scheme of arrangement shall file a draft scheme with the stock exchange for a Non-Objection Certificate (NOC) before approaching the NCLT
Some of the disclosures include:
- Financial details of the transaction
- Timelines for the regulatory approvals
- Government Structure involved in the post-merger
In accordance with these rules, RIL informed the BSE and NSE of important information on the merger, including as its $1.4 billion investment in SIPL (the joint venture company), Mrs. Nita Ambani and Mr. Uday Shankar’s leadership positions, and remarks regarding anticipated advantages.
- Competition Act 2002
Any merger or acquisition that is above certain asset or turnover benchmarks is required by Section 6 of the Competition Act, 2002, to notify the Competition Commission of India (CCI). The following are the thresholds:
- Assets: around USD 54 million, or INR 4.5 billion.
- Revenue: INR 12.5 billion, or around $150 million USD.
These benchmarks were set by the Reliance-Disney transaction because of its INR 703 billion (about USD 8.4 billion) valuation. On 28 August 2024, the CCI issued conditional clearance.
ANTI-TRUST CONCERNS IN CORPORATE TAKEOVERS
To determine if the merger will negatively impact market competition, the CCI’s analysis concentrated on several critical areas:
- Dominance of the Market
The combined company is expected to influence the following:
- 40% of TV viewership for advertising.
- 42% of total TV market share.
- 34% of the OTT streaming market share.
This degree of market dominance raised concerns over less competition and fewer options for consumers.
- Rights to Broadcast Sports
Disney and RIL own major cricket broadcasting licenses, including Disney for ICC tournaments and the IPL. The merger raises concerns about undue influence over sports broadcasting until these rights expire in 2027 and 2028, which unifies these rights under a single organization.
- The Effect of Advertising on the Market
After the merger, SIPL will get about 40% of TV ad income. Higher advertising costs and fewer options for smaller marketers may result from this.
ARGUMENTS PRESENTED BY DISNEY AND RIL
RIL and Disney made the following claims to allay regulatory worries:
- Cricket Broadcasting Rights Expiration: They stressed that rivals can bid for additional rights when the existing cricket broadcasting privileges expire in 2027 for Disney and 2028 for RIL.
- Benefits for Advertisers: They contended that after the merger, advertisers would still have efficient ways to reach particular demographics.
- Market Dynamics: They gave authorities their word that fair market practices would be maintained through competitive bidding procedures.
IMPACT ON STAKEHOLDERS
- Customers
Consolidation may result in unified content offers across platforms, but it may also raise subscription fees and lessen the variety of material available.
- 2. Rivals
Because of SIPL’s vast resources and market reach, smaller businesses could struggle to compete.
- Promoters
Advertisers may have to pay higher rates because there is less competition in the TV and OTT advertising sectors.
The complex relationship between corporate strategy and regulatory compliance in India’s entertainment industry is highlighted by the Reliance-Disney merger. Such takeovers present serious problems with regard to market domination and consumer welfare, even if they can spur innovation and growth.
Stakeholders may guarantee that corporate takeovers enhance India’s dynamic media ecosystem without sacrificing fairness or competition by abiding by regulatory frameworks such as the Companies Act, SEBI rules, and the Competition Act.
Strong regulatory control will continue to be necessary as India’s entertainment sector develops in order to strike a balance between business goals and the general welfare- a challenging but vital responsibility for both regulators and legislators.
Author: Achyuta Gopi Shankar, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.