Two proxy advisory firms have asked shareholders to support the proposed merger between Zee Entertainment Enterprises (ZEEL) and rival Sony Pictures Networks India (SPNI), a move that would create the country’s largest media entertainment firm.
This comes ahead of the shareholders’ meeting on October 14 to seek approval for the merger. The meeting was convened following a direction by the National Company Law Tribunal’s (NCLT) Mumbai bench.
The resolution seeks approvals for merger between ZEEL, Bangla Entertainment Private Ltd (BEPL, a Sony Group company) and Culver Max Entertainment Private Ltd (CME, which was formerly SPNI). It also seeks approval of a non-compete clause, changes to the charter documents and ZEEL chief executive officer and managing director Punit Goenka’s remuneration.
“In doing so the resolution is seeking a single approval on various matters that should have been presented to be voted upon separately to shareholders, as some of these are prejudicial to the interest of the minority public shareholder of ZEEL. We raise concerns over the `1,100 crore non-compete payment: we do not believe there is a potential risk of competition arising from ZEEL promoters,” Institutional Investor Advisory Services India (IiAS) said in a note.
The proxy advisory firm also raised concerns that SPNI will have board nomination rights for five board seats independent of any shareholding threshold, giving SPNI board control even if its shareholding drops to less than 10%. Such clauses, when embedded in the company’s Articles of Association, allow promoters to remain entrenched even with token shareholding.
“While we do not support the payment of the non-compete fees, the changes to the charter documents and Goenka’s remuneration, we are constrained to support this resolution because it has been presented as a single resolution and we believe that merger of ZEEL and SPNI, is likely to be value accretive and in the larger interest of shareholders of both companies,” it said.
On its part, InGovern Research Services stated that there were a number of benefits from the amalgamation.
The combined entity would have a cash balance of $1.50 billion at closing, which will enable the combined firm to drive sharper content creation, strengthen its footprint in the rapidly evolving digital ecosystem, bid for media rights in sports and pursue other growth opportunities.
Further, it will create a comprehensive entertainment business, enabling it to serve consumers with wider content choices across platforms. The merger presents a significant opportunity to jointly take the businesses to the next level and drive substantial growth in the global arena. The joint firm would also have a better market standing and ability to intensify over-the-top foray.
It would also have tremendous pricing power, especially on the advertisement revenue front.
“Given the benefits and growth opportunities that the merger presents, and creation of a multinational listed subsidiary of Sony corporation, we recommend shareholders to vote for the resolution,” InGovern added.
Earlier on October 4, the proposed merger had received Competition Commission of India’s approvals, with certain conditions. Prior to which in July, it received approvals from both the bourses, the BSE and the NSE.
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