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India's top conglomerate Reliance Industries and Walt Disney on Wednesday announced the merger of their India TV and streaming media assets, creating an $8.5 billion entertainment juggernaut far ahead of rivals in the world's most populous nation.

Reliance, led by Asia's richest man Mukesh Ambani, will inject $1.4 billion in the merged entity, with the company and its affiliates holding a more than 63% stake, with Disney owning the rest, the companies said in a joint statement.

For Disney, the merger follows its long-drawn struggle to arrest a user exodus from its bleeding India streaming business and financial strain caused by billions of dollars in Indian cricket rights payments, in another example how foreign businesses can struggle to grow in India.

The merger values the India business of the U.S. entertainment giant at just around $3 billion, far lower than the roughly $15 billion valuation when Disney acquired it as part of its Fox deal in 2019. A senior Disney source said the value of the company's India assets was closer to $4.3 billion, when accounting for synergies.

Together, the Reliance-Disney merged entity will have 120 TV channels and two streaming platforms, plus TV and streaming cricket rights for key tournaments in a country with a crazy following for the sport.

"The combined entity will create a sports behemoth in India," said Jinesh Joshi, an analyst at India's Prabhudas Lilladher.

"This merger will give Reliance great bargaining power when it comes to negotiating advertisement contracts ... For Disney, coming together with a bigger player, in terms of (financial) pockets, will give it a cash cushion," he added.

The companies said the transaction valued the merged venture at around $8.5 billion on a post-money basis. They did not elaborate further.

The deal will help Ambani eclipse rivals such as Japan's Sony, India's Zee Entertainment and Netflix in the country's $28 billion media and entertainment sector.

Reliance said Ambani's wife Nita would chair the board of the combined entity, and former top Disney executive Uday Shankar would serve as vice chair.

The merged entity will have over 750 million viewers across India and will also cater to Indian diaspora globally, the companies said.

"Reliance has a deep understanding of the Indian market and consumer," Disney CEO Bog Iger said in the statement, and the deal will allow "us to better serve consumers with a broad portfolio of digital services and entertainment and sports."

An internal memo by Disney's entertainment co-chairs Dana Walden and Alan Bergman, and ESPN’s Jimmy Pitaro, seen by Reuters, said India remained a "key market" for the company and one of the "strongest international growth markets of scale."

"We are committed to ensuring a robust presence there," the memo said.

INDIA CHALLENGES

The deal also comes when Disney is facing pressure globally to streamline its businesses. Iger returned to Disney in November 2022, less than a year after he retired, and has since restructured the company to make the business more cost effective.

Still, Disney is up against activist billionaire investor Nelson Peltz who is pushing the home of Mickey Mouse to cut costs and create a profitable streaming business globally.

Iger in November said the company would like to stay in India, but it was considering its options. Disney internally recognised that it misjudged the Indian market, company sources have previously told Reuters.

Disney acquired Indian streaming service Hotstar and Star TV channels, a household name in India, when it paid $71 billion for some 21st Century Fox global assets in 2019.

With the streaming rights of the Indian Premier League (IPL), the world's richest cricket league, in the bag, Disney made cricket on Hotstar a paid service in 2020 and was confident about reaching up to 100 million users within years.

That did not happen. As Ambani snatched IPL rights away in a $2.9 billion bid in 2022 and streamed the games for free, Disney subscribers fled - out of 61.3 million Hotstar users in October 2022, 23 million had left by December.

Disney said it would take a non-cash impairment charge of $1.8 billion to $2.4 billion, approximately half of which reflects a write-down it Star India assets, according to regulatory filings made on Wednesday.