Eros to merge with TPG-backed STX to create bigger NYSE-listed media group

By Narinder Kapur

  • 20 Apr 2020
Credit: 123RF.com

UK-based Eros International Plc., which operates film production and over-the-top Eros International Media Ltd, has announced that it is merging with the US-based STX Entertainment in a move focussed at creating a global media company to compete with giants in both markets.

Eros said in a statement that the combined company will be called Eros STX Global Corporation. It will publicly list on the New York Stock Exchange with Eros International plc chairman Kishore Lulla as executive co-chairman.

As part of this merger, Eros STX will undergo a revamp of its capital structure, including $125 million (around 956.34 crore at current exchange rates) in incremental equity from STX Entertainment investors. These include private equity firms TPG and Hony Capital and multinational telecommunications company Liberty Global.

Apart from this, the combined entity will also be given access to a $350 million (around Rs 2,677.76 crore) credit line facility from JP Morgan. Eros STX says the merger will also allow the company to access partnerships with firms such as Apple, Amazon, Microsoft, NBCUniversal and Google.

Further, the new media house says that its pro-forma revenue for the 2019 calendar year stands at $600 million. The merger will also lead to $50 million in actionable operating synergies across the Eros International and STX Entertainment’s global operations.

STX’s Robert Simonds will be co-chairman and chief executive officer, while Andrew Warren will be the new entity’s chief financial officer. Rishika Lulla Singh and Noah Fogelson will be co-presidents, and Prem Parameswaran will be its head of corporate strategy.

“This merger will not only fuel our growth but will also diversify our underlying sources of revenue and subscribers with a truly global play, building a powerhouse between East and West,” Lulla said in a statement. He added that Eros Intenational was already at an “inflection point” with its OTT platform play.

Separately, Simonds said the merger would also allow the two to access each other’s networks and leverage it for their combined consumers. Eros STX Global will be domiciled in the Isle of Man, with headquarter offices in Mumbai and California’s Burbank. The overall transaction is subject to regulatory approvals and is expected to close in the second calendar quarter of this year.

Shares of Eros International were trading nearly 10% up at Rs 16.35 apiece at the time of writing this report.

The intensifying competition in the OTT space

While not mentioned directly, the merger also acts as a shot across the bow for the global media juggernaut that is Disney. The combined entity will have a strong focus on the US and Indian markets, the two countries where the Burbank-headquartered Disney has made strong plays in the past few years.

A VCCircle analysis from December last year reported that Disney subsidiary Star India Pvt. Ltd. snapped up the crown of India’s biggest media and entertainment company from Bennett Coleman and Co. Ltd. Plays such as OTT platforms Disney+ and Hotstar have scooped up millions of subscribers for its properties across genres.

Services such as Amazon's Prime Video, Netflix, Viacom18’s Voot, BCCL’s MX Player and Zee’s Zee5 have raced to capture consumer attention through a mix of original programming and signing deals with production houses for existing properties. The three have also concentrated on expanding their base to regional content to appeal to the broader section of India’s population.

Other platforms apart from these have also raised money from investors to carve out a niche for themselves in this space. For instance, The Viral Fever in May last year raised an additional $5 million (around Rs 34 crore) from existing investor Tiger Global Management.

Similarly, in July, digital entertainment startup Pocket Aces Pictures Pvt. Ltd raised Rs 100 crore (about $14.5 million) from Sequoia Capital India, DSP Group and 3one4 Capital, among others.