Facebook and Reliance Jio hit the headlines early Wednesday morning, in a break from the daily lockdown news. Mark Zuckerberg announced in a Facebook post that the technology giant will acquire a 9.99 per cent stake in Jio Platforms Ltd (JPL) through a fresh issue of shares worth Rs 43,574 crore. The deal values JPL—the holding company of Reliance Jio — at an enterprise value Rs 4.62 trillion.
JPL, a fully-owned subsidiary of Reliance Industries Ltd, houses many digital platforms like Jio Saavn and Radisys, besides the biggest disruptor in the Indian telecom scene, Jio.
However, both sides made it clear that they will continue to compete in many areas where they have their own digital products. For instance, while Jio Pay is already operational, Facebook is awaiting permission for its digital payment platform. Also, Reliance has Jio Chat, which competes with WhatsApp directly.
“We will collaborate, not integrate. And in some areas, we will also compete as we have our own product lines. The deal is also not exclusive,” said Anshuman Thakur, head of strategy at Reliance Jio. He also pointed out that Jio or JPL could go public, but only in the medium term, in about three to four years.
The transaction could possibly help Facebook find new ways to monetise WhatsApp and make a dent in the enterprise business where its competitors like Amazon and Google are ahead. A stake in JPL is also likely to give it a strong toehold in the digital sweepstakes in India where it competes with the big boys like Google. Facebook India Online Services revenues were at Rs 892 crore in FY19 against Google India’s Rs 4,147 crore.
Big businesses have supported the deal in the midst of the pandemic crisis. Says Anand Mahindra, chairman of Mahindra & Mahindra, said the deal was good not just for the two of them. Coming during the virus crisis, it’s a strong signal of India’s economic importance, according to Mahindra.
"It strengthens the hypothesis that the world will pivot to India as a new growth epicentre,’’ he pointed out. Harsh Goenka, chairman, RPG Enterprises, called the deal a great confidence booster for India, India Inc and for Reliance.
"The transaction, during this global turbulent time, shows how far Indian companies have reached.’’
On the other hand, US citizens were not happy with the deal, questioning why Facebook hadn’t taken similar initiatives for US-based small businesses. Some in India questioned the privacy repercussions of the deal too.
Others though backed the timing of the deal. Sanchit Vir Gogia, founder and chief analyst at Greyhound Research, said the deal could not have come at a better time as post Covid-19 advertising, which is the main source of revenue, is going to take a hit.
Post-deal plans suggest Rs 15,000 crore will be retained in JPL, thus reducing its debt to Rs 25,000 crore. The remaining cash from Facebook will move to RIL after redemption of the optionally convertible preference shares (OCPS).
As a result, analysts estimate the net debt of RIL could come down by 28.5 per cent allaying fears amongst investors that it’s over-leveraged.