Reliance Industries (RIL), the country's largest company by market capitalisation, said on Wednesday it was acquiring majority stakes in Hathway Cable & Datacom and DEN Networks for Rs 52.30 billion.

The announcement brings to an end speculation about the contours of the deal, which had intensified over the last few days. RIL will pick up a 51.3 per cent stake in Hathway for Rs 29.40 billion through a preferential allotment of shares. In DEN's case, it will acquire 66 per cent for Rs 22.90 billion -- through a preferential issue of Rs 20.45 billion and buying shares worth Rs 2.45 billion from the promoters.

RIL will pay Rs 32.35 a share for its preferential allotment in Hathway and Rs 72.66 a share for DEN Networks. On Wednesday, Hathway shares closed at Rs 29.50 on the BSE, while DEN ended at Rs 75.70 a share.

The acquisitions will fit in with RIL's push into cable broadband through Reliance Jio, which has already shaken the telecom market. RIL Chairman Mukesh Ambani had announced the ambitious fibre-to-home Jio GigaFiber service in July, saying it would offer broadband, IPTV, landline, virtual reality gaming and more in an all-in-one solution. On Wednesday, the company said the move would help accelerate Jio GigaFiber's roll-out to 50 million homes across 1,100 cities.

Anshuman Thakur, head of strategy and planning, Jio, said DEN and Hathway would now have capital to deploy on new things like infrastructure and roll-out.

"We have to spend time with the companies to see how the operating model will go forward," he said after the announcement of the deal. "The idea is that infrastructure needs to be updated, as most of these players serve their customers on coaxial cables," he said.

RIL will make mandatory open offers for Hathway's subsidiaries, including GTPL Hathway and Hathway Bhawani Cabletel & Datacom, for which it is likely to spend Rs 6-7 billion more, according to analysts. The per-subscriber acquisition cost for RIL in Hathway and DEN works out to around Rs 200. Even after the open offer is considered, the per-subscriber cost is not expected to cross Rs 250, they said. However, very few shareholders are likely to tender their shares in the open offer for the two companies, expecting future upside.

RIL is not expected to face hurdles when seeking approval from the Competition Commission of India for the transactions, according to industry insiders. Together with Hathway, DEN and their local cable operators, the company will be able to offer an upgrade to JioGigaFiber and Jio Smart-Home Solutions to the 24 million existing cable-connected homes of these companies across 750 cities.

The 18-million-strong fixed broadband market in India is dominated by a cross-spectrum of players, including telecom operators such as BSNL, MTNL and Airtel at one end, pure-play broadband operators or internet service providers on the other. Names such as ACT and Spectra and cable companies such as Hathway and DEN fall in between.

While cable companies have been slower to 'fiberise' in comparison to telcos and internet service providers operating in the space, for RIL it was clamour for the last-mile connectivity that pushed the company to secure the deal, said experts.

For cable companies, on the other hand, it is a chance to exit while the going is good, given that laying fibre to homes is capital-intensive and the ability to improve the average revenue per user (ARPU) in a competitive market remains weak.

For instance, Hathway's ARPU in the April-June period declined to Rs 690 from Rs 710 sequentially. DEN, meanwhile, has seen a sharper drop in ARPU to Rs 562 in April-June versus Rs 632 earlier. The two are also saddled with debt, implying that the ability to raise significant resources for expansion purposes would not be easy, analysts at SBI Cap Securities said.

"Intense competition in the broadband business prompts us to be cautious. Continued investments in broadband and growing competition will exert pressure on profitability and may lead to prolonged cash burn," Dipesh Mehta, analyst at SBI Cap Securities, had said about Hathway and DEN in August, following the first-quarter results.

For the year ended March 31, 2018, Hathway's consolidated debt was nearly Rs 17 billion, while DEN's consolidated debt stood at Rs 5.31 billion.

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