Want to learn some Powerplay and “Good Will” from Reliance? 

 I mean Goodwill in Finance! 🙂


On 28th Aug, Wed, the Competition Commission of India approved the merger of Reliance and Walt Disney’s India media assets.

Earlier this year, Walt Disney had reported a ~70% drop in earnings due to a $2B dent in Disney’s India business.

Reason:
Walt Disney had a $2B “𝗴𝗼𝗼𝗱𝘄𝗶𝗹𝗹 𝗶𝗺𝗽𝗮𝗶𝗿𝗺𝗲𝗻𝘁” charge linked to Star India assets — 𝙙𝙪𝙚 𝙩𝙤 𝙍𝙚𝙡𝙞𝙖𝙣𝙘𝙚!
Why Reliance? What did they do? .. Read on!

First, 𝗹𝗲𝘁𝘀 𝘂𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱 𝘄𝗵𝗮𝘁 𝗶𝘀 𝗚𝗼𝗼𝗱𝘄𝗶𝗹𝗹?

When a company acquires a business by paying a premium, the premium amount or the overpayment above the fair value of the business is called goodwill.

Back in 2019, Disney had acquired Star India by paying a hefty premium.

𝘐𝘯 𝘤𝘰𝘮𝘦𝘴 𝘙𝘦𝘭𝘪𝘢𝘯𝘤𝘦!
In 2023, Star India reported a reduction in revenues and subscribers primarily because Star India’s streaming platform lost IPL rights to Reliance’s Jio Cinema.

Goodwill needs to be tested for impairment periodically i.e.,
hypothetically, if Disney were to sell the acquired Star India assets, would they be able to sell for the amount they bought it for? If the impairment test concludes yes, then the goodwill is carried as it is; if no, then goodwill needs to be impaired i.e., diminished

Since Star India had lost IPL rights, so its valuation had to be impaired or reduced which contributed to the $2B charge to Disney.

And now after having lost $2B, Disney entered into this merger with Reliance to get their hands on this huge 🏏 market again!

𝘛𝘩𝘢𝘵 𝘪𝘴 𝘴𝘰𝘮𝘦 𝘱𝘰𝘸𝘦𝘳𝘱𝘭𝘢𝘺 𝘢𝘯𝘥 𝘨𝘰𝘰𝘥𝘸𝘪𝘭𝘭 𝘧𝘳𝘰𝘮 𝘙𝘦𝘭𝘪𝘢𝘯𝘤𝘦!
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Few weeks ago, I had taken a lame attempt at creating a YouTube short on explaining Goodwill using this merger example!
Here is the link: