Eros International
and STX Entertainment to Combine, Creating a Global Entertainment Content,
Digital Media & OTT Powerhouse
Combined
Company will Remain a Publicly Traded Enterprise, Uniquely Positioned to
Benefit from the Accelerating Consumption of Premium Digital Content in the
World’s Most Important Growth Markets with a Robust Capital Structure and
Experienced Management Team
·
Combines leading Indian film studio and OTT
platform with one of Hollywood’s fastest-growing independent media companies; to
be named Eros STX Global Corporation and will trade publicly
on the NYSE
·
Creates a pre-eminent global media company with
unique resources and capability to develop, produce and distribute Bollywood
and Hollywood premium content at scale and across platforms, leveraging unique
strategic and distribution partnerships globally including Apple, Amazon,
Microsoft, NBCUniversal and Google/YouTube
·
Revamped capital structure includes $125 million of
incremental equity from new and existing STX Entertainment equity investors,
including TPG, Hony Capital and Liberty Global; superior liquidity and a robust
balance sheet including a $350 million JP Morgan-led credit facility
·
Increased financial scale with over $600 million in
pro forma revenue for calendar 2019 and over $300 million of highly predictable
aggregated future revenue from STX Entertainment films already released through
2019
·
188 million+ Eros Now registered users including 26
million+ paid subscribers
·
Approximately $50 million of highly actionable operating
synergies across global operations
·
Newly constituted management team led by Kishore
Lulla as Executive Co-Chairman, Robert Simonds as
Co-Chairman & Chief Executive Officer, Andrew Warren as
Chief Financial Officer, Rishika Lulla Singh and Noah
Fogelson as Co-Presidents, and Prem Parameswaran as
Head of Corporate Strategy
STX
Entertainment is a fully integrated global media company specializing in the
production, marketing, and distribution of talent-driven motion picture,
television and multimedia content. It is the first major entertainment and
media company to be launched at this scale in Hollywood in more than twenty
years.
Founded in 2014, STX Entertainment is a
leading independent Hollywood studio focused on producing, marketing, owning
and distributing film and television content for global audiences across
traditional and digital media platforms. To date, the company has released 34
films grossing over $1.5bn in global box office receipts, including such
leading titles as Hustlers, Bad Moms and The Upside. STX Entertainment has a
deep global distribution network spanning 150+ countries with world-class
partners. STX Entertainment has a differentiated asset-lite, capital efficient
business model, unique strategic relationships and well-established access to
the Chinese entertainment market. STX Entertainment generated revenue of over
$400 million in calendar year 2019.
The combined company, to be called Eros
STX Global Corporation, will have a robust pipeline of feature length films
and episodic content with powerful, well-established positions in the world’s
fastest-growth global markets. The combined company, with $125 million of
incremental equity, will boast a strong and revamped capital structure and
superior liquidity position at close with $264 million of pro forma net debt,
$195 million of pro forma cash balance and $120 million of available revolver
capacity as of December 31, 2019. The combined company, which following the
consummation of the transaction will be publicly traded on NYSE, will possess a
strong management team led by highly experienced executives from both entities.
“We are thrilled to join with STX
Entertainment as this represents a landmark step in our company’s
transformation. We are already at an inflection point as we move to a more
consistent, stable and high growth revenue profile with our digital
over-the-top (“OTT”) platform. 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. We are well
positioned to create long-term value for our shareholders, partners and
employees,” said Kishore
Lulla Executive Chairman and Chief Executive Officer of Eros
International. “Collectively, we will have a unique capability to
present our film and episodic libraries and pipeline of original content to a
broad and growing global audience through multi-year output deals, strategic
alliances and our market leading Eros Now streaming platform.”
Mr. Lulla continued, “This company will be financially
strong and uniquely positioned to compete immediately thanks to its global
footprint, strong revenue and recapitalized balance sheet, including a large
new equity commitment. These significant investments and no meaningful debt
maturities in the near-term enable the company to pursue strategic investments
in key growth areas, including traditional and digital distribution, film
acquisition, TV production and development of original episodic content.”
Robert Simonds, Executive Chairman and Chief Executive Officer of
STX Entertainment stated, “The combination of our two companies creates
the first truly independent media company that deeply integrates the expertise
and creative cultures of Hollywood and Bollywood. Kishore is a legend in the
Indian entertainment industry and a pioneer in OTT content development and
distribution in India. Together we will have the relationships, management
expertise and resources to create new content and grow rapidly in the largest
and most attractive global markets. On day one, we will have the ability to tap
into our significant combined libraries and draw upon our deep relationships
with A-list actors, directors and producers across the globe to create even
more compelling content for millions of consumers.”
Transformational Combination Creates
Strategic and Financial Benefits
·
Robust
pipeline of film and episodic content with multi-channel distribution: The combined
company is projected to release approximately 40 feature length films,
including seven sequels to prior hits and 100+ originals of episodic content,
in 2020. The combined company’s global multi-channel distribution across pay-TV
via Showtime, digital via Netflix, Hulu, Amazon and Eros Now, the #1 Subscription
Video on Demand (“SVOD”) platform for Indian content based on size of OTT
library, reduces reliance on theatrical monetization. Eros Now’s strategic and
distribution partnerships with Apple, NBCUniversal, Microsoft and YouTube, as
well as STX Entertainment’s global output and distribution agreements covering
150+ territories, provides unique opportunities for rapid content
proliferation.
·
Well-established
positions in the fastest growing and largest global markets: In India, the
world’s fastest growing media market, the combined company will have a leading
box office presence and one of the largest libraries of Indian language films.
In China, the world’s second fastest growing media market, the combined company
will have existing production and distribution capabilities plus relationships
with the most popular “A-list” talent in this market. In the United States, the
combined company will have the leading box office share among independent
Hollywood studios, with a successful film library and a substantial film and
episodic content pipeline.
·
Strong
capital structure and fully funded business plan enables long term stability
and drives growth investment: Recapitalized balance sheet with $125 million of
incremental new equity funding and meaningful extension of average debt
maturities. The combined company will have a fully-funded business plan, a
conservative capital structure, and superior liquidity position with $264
million of pro forma net debt, $195 million of pro forma cash balance and $120
million of revolver capacity as of December 31, 2019. In addition, the new
company’s risk-mitigated production / distribution model requires limited
company equity investment to produce content at scale, features low overhead
and utilizes third-party funding to drive attractive margins and returns on
investment.
·
Substantial
operating synergy opportunities: The combined company is expected to
generate approximately $50 million in run-rate operating synergies within 24
months of closing, stemming from integration and scale benefits, optimization
of global content distribution and enhanced monetization of the Eros Now
platform.
·
A
newly constituted board of directors and senior leadership team: The initial Board of
Directors of the combined company will include nine board members comprised of
highly regarded media, private equity and public company executives with four
Directors selected by Eros International (with one independent Director), four
Directors selected by STX Entertainment (with one independent Director) and one
independent Director selected jointly. Drawing talent from both companies, the
combined entity will have a team of industry-leading creative, operational and
financial experts, with deep knowledge of key global growth markets and U.S.
public company governance experience. In addition to Mr. Lulla and Mr. Simonds,
Andrew Warren, currently STX Entertainment’s Chief Financial Officer, will
serve as CFO; Rishika Lulla Singh, currently Chairman of Eros Digital, and Noah
Fogelson, currently STX Entertainment’s EVP of Corporate Strategy and General
Counsel, will each serve as Co-Presidents; and Prem Parameswaran, currently
Chief Financial Officer of Eros International, will serve as Head of Corporate
Strategy. To ensure sustained market focus, Adam Fogelson will continue to
serve as Chairman of STX Motion Pictures Group, while Pradeep Dwivedi will
continue to serve as CEO-India.
Transaction
In the transaction, STX Entertainment will
merge with a newly formed subsidiary of Eros International and will survive as
a wholly owned subsidiary of Eros International. The stock-for-stock,
merger-of-equals transaction calls for the combined company to utilize Eros
International’s existing dual-class share structure. Eros B Ordinary Shares
which will continue to be owned by the Eros International founder group will
retain their 10:1 voting rights while Eros A Ordinary Shares will carry one
vote per share. Pursuant to the merger agreement, STX Entertainment shares will
be converted into contractual contingent value rights that will be settled for
Eros A Ordinary Shares approximately 75 days after the effective time of the
merger. STX Entertainment shares will convert such that, prior to giving effect
to any incremental equity investment in Eros International or new management
equity plan, existing Eros International shareholders will own approximately
50% of the combined company and existing STX Entertainment shareholders will
own approximately 50% of the combined company with approximately 338 million
diluted shares outstanding, taking into account the effect of existing
in-the-money stock options and conversion of outstanding senior convertible
notes. In connection with the merger, $125 million of incremental equity will
also be contributed to the combined company by new equity investors and
existing STX Entertainment equity investors including TPG, Hony Capital and
Liberty Global. Furthermore, the combined company will adopt a management
equity plan with an aggregate equity pool of 40 million Eros A Ordinary Shares,
that will be allocated between Eros International and STX Entertainment
management. The $125 million of incremental equity and the management equity
plan will represent approximately 15% and 9% of the combined company,
respectively, on a fully diluted basis, based on Eros International’s closing
stock price as of April 16th, 2020. Following the merger, the
incremental equity investment and allocation of the management equity plan, and
based on this closing price, Eros International’s Founders Group will hold
approximately 41% of the voting power and 10% of the economics in the combined
company on a fully diluted basis through a combination of A and B Ordinary
Shares. Please refer to the Eros International Form 6-K for a full summary of
the material terms of the transaction.
The combined company will be domiciled in
Isle of Man, and headquartered in both Mumbai, Maharashtra, India and Burbank,
California, USA.
Approvals and Timing
The transaction was approved by the Boards
of Directors of both companies and approved by the requisite vote of the
shareholders of both STX Entertainment and Eros International. The transaction
is subject to regulatory approvals and closing conditions and is expected to
close in the second calendar quarter of 2020. Eros International’s Founder
Group has signed a voting and support agreement for the transaction.
Financial Outlook
Post closing, Eros STX Global Corporation
intends on providing financial outlook for the combined company, including
projected three-year compound annual growth rates for revenue, free cash flow
and EBITDA.
Advisors
Citigroup Global Markets Inc. is serving as
financial adviser to Eros International and Gibson, Dunn & Crutcher LLP is
serving as its legal adviser. PJT Partners is serving as financial adviser to
STX Entertainment, and Kirkland & Ellis LLP is serving as its legal
adviser. JP Morgan is serving as administrative agent under the senior credit
facility.
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