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Recent Updates — Facebook Jio Deal: Jio accepts FB friend request, sells 10% stake for record Rs 43,574 crore | India Business News

Facebook Jio Deal: Jio accepts FB friend request, sells 10% stake for record Rs 43,574 crore | India Business News

MUMBAI/BENGALURU: In what is being touted as the largest strategic investment for a minority stake by a technology company anywhere in the world, social media giant Facebook has agreed to invest $5.7 billion or Rs 43,574 crore for a 9.99% stake in Mumbai-based Jio Platforms, a unit of Reliance Industries (RIL). Between Jio’s last reported subscriber base of 388 million and the 700 million-plus Indian users on the three FB platforms – Facebook, WhatsApp and Instagram – their combined reach will be well over a billion, albeit with considerable overlap.

The transaction gives Mark Zuckerberg, Facebook CEO and the world’s seventh richest man according to Forbes, an opportunity to deepen FB’s presence in India, which is its largest market in terms of users and where Mukesh Ambani, India’s richest man, has upended the telecom industry with cheap data plans.

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“At the core of our partnership is the commitment that Mark Zuckerberg and I share for the all-round digital transformation of India,” said Ambani, chairman, RIL, in a video message. RIL believes that comprehensive digitalisation will be an absolute necessity to revitalise the Indian economy in the post pandemic era.

Zuckerberg said there’s more to the financial investment it is making in Jio Platforms. “We are committing to work together on some major projects that will open up commerce opportunities across India,” he said on his FB page.

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The transaction, which is among the largest FDI deals in India’s technology sector, will help RIL cut its $43 billion debt as about $4.1 billion is expected to be paid back by Jio Platforms to parent RIL. The Facebook investment values Jio Platforms–which runs apps like JioSaavn and JioCinema and holds investments in Reliance Jio Infocomm, operator of the world’s third largest mobile services network—at $57 billion (and $66 billion based on Reliance’s assumption of an exchange rate of Rs 70/$).

If Jio Platforms were to be listed today, it would be the fifth most valued company in India after RIL, TCS, Hindustan Unilever and HDFC Bank. It is valued higher than India’s second and third largest technology companies – Infosys and Wipro – combined. Jio Platforms will also be 70% more valuable than its closest rival Bharti Airtel, which had a closing market capitalisation of Rs 2.73 lakh crore on Wednesday.

In October 2019, RIL consolidated the digital platform business under a separate subsidiary to mirror the structure of global companies like Alphabet-Google, Tencent and Alibaba which are largely debt-free, making it easier to attract investors into the new entity.

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The RIL-FB transaction has been in the works since last year, with the first few meetings between the top teams including Ambani and Zuckerbeg revolving around understanding the potential areas of business collaboration. The conversations progressed with the initial target of closing the deal on March 31. But the outbreak of Covid-19 delayed the final lap of due-diligence.

Facebook will get a board seat and an “observer seat” on Jio Platforms. The deal is a binding agreement, according to RIL, but will need approval from antitrust watchdog Competition Commission of India. The announcement boosted RIL’s shares to close at Rs 1,363.6, up by 10.2% on the NSE.

The deal will also see a tie-up between RIL’s retail unit and Facebook’s WhatsApp to leverage each other’s platforms to allow consumers to order items from their local kirana stores. This would enable Facebook to monetise its large user base, while also potentially serve as a platform to drive adoption of its payment business under WhatsApp which will compete with Google Pay, Alibaba and Softbank-backed Paytm and Walmart-owned Phonepe.

“India has more than 60 million small businesses and millions of people rely on them for jobs. With communities around the world in lockdown, many of these entrepreneurs need digital tools they can rely on to find and communicate with customers and grow their businesses,” Zuckerberg said.

Ambani, said industry observers, wants Jio to be known as a digital services platform like US-based Google and China’s Alibaba, and not just as a telecom player. Digital services contributed 25% to RIL’s operating profit for the nine months of fiscal 2020.

Morgan Stanley and AZB Partners advised Jio Platforms on the deal while Bank of America-Merrill Lynch assisted Facebook

2020-04-24 08:14:05

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