The impairment charges pertain to the merger deal signed by Walt Disney with Reliance Industries Ltd (RIL) to create $8.5-billion media entity through the combination of Star India and Viacom18.
“In connection with the transaction, the company determined that Star India should be classified as held-for-sale. In the current quarter, the company expects to record non-cash pre-tax impairment charges estimated to be between $1.8 billion to $2.4 billion, approximately half of which reflect a write-down of the net assets of Star India in order to adjust them to fair value (less estimated transaction costs) pursuant to held-for-sale accounting and approximately half of which reflect a write-down of goodwill at the entertainment linear networks reporting unit, reflecting the impact of removing Star India,” Walt Disney said in a filing to the US Securities and Exchange Commission.
Under its held-for-sale accounting, Walt Disney will continue to adjust the net book value of Star India to its fair value (less estimated transaction costs) until the closing date of the transaction.
“Thus, the company may recognise incremental gains or losses each reporting period as a result of changes in the net book value and/or estimated fair value of Star India (e.g., due to operating results or foreign exchange rate changes, etc.) until the transaction has closed,” the company added.
As per the definitive binding agreements signed between the two companies, RIL and Bodhi Tree-owned Viacom18 will merge into Star India. RIL and Viacom18 will own a 63% stake in the proposed merged entity, while Disney will hold 37%. RIL will invest $1.4 billion in the merged entity to support its future growth plans.
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