Zee Entertainment Enterprises (Zee) and Sony Pictures Networks India (SPNI), an indirect subsidiary of Sony Pictures Entertainment Inc, on Wednesday signed a definitive agreement to create one of the the country’s largest media and entertainment company. As part of the pact, the two will merge their linear networks, digital assets, production operations and programme libraries. The merged entity will have a 27% market share of the general entertainment space. Analysts expect the deal to get regulatory and shareholder approvals over the next 3 to 4 quarters.
The development follows the non-binding term-sheet for merger signed by the both the parties on September 22, after which they had entered a 90-day due diligence process.
Following the completion of the deal, Sony Pictures Entertainment will indirectly hold a majority 50.86% stake in the combined entity, while the promoters of Zee will hold a 3.99% stake and the remaining shareholders of Zee will hold the balance 45.15% in the merged entity.
Zee’s Punit Goenka will continue as the managing director and chief executive officer of the merged entity. The other board members, majority to be nominated by Sony Group, would include SPNI managing director and CEO NP Singh, who will assume broader executive position as the chairman of SPE.
“It is a significant milestone for all of us, as two leading media and entertainment companies join hands to drive the next era of entertainment filled with immense opportunities. The combined company will create a comprehensive entertainment business, enabling us to serve our consumers with wider content choices across platforms,” Goenka said.
Earlier, in November, Goenka had said that the merger of Zee and Sony will form the largest media entertainment player in the country with standalone revenues of about $2 billion.
According to the contours of the deal, SPE, through a subsidiary, will pay a non-compete fee to certain promoters of Zee. The promoters would infuse this amount as primary equity capital into SPNI, entitling them to acquire shares of SPNI. According to market sources, the infusion would be at Rs 300 per share. On a post-closing basis, this would be about 2.11% of the combined entity’s total shares. SPNI would have a cash balance of $1.5 billion at the close of the deal, including the capital infusion by SPNI shareholders and Zee founders. Additional capital would be infused for content creation across platforms, strengthen footprint, bid for media rights in sports landscape and pursue growth opportunities, it said.
Zee founders will also limit the equity they may own in the combined company to 20% of its outstanding shares. The joint statement issued says the construct does not provide the promoters (founders) of Zee any pre-emptive or other rights to acquire equity of the combined company from the Sony Group, the combined company or any other party. Any shares purchased by the promoters (founders) of Zee would have to be in compliance with all applicable laws, including any pricing guidelines.
According to Motilal Oswal Financial Services, “The merged entity’s higher competitive position in the market and synergy gains will give companies significant potential to improve profitability. Improving corporate governance and operational performance could aid in the long run significantly”.
Following the closure of the deal, NP Singh will become chairman of Sony Pictures India, a division of SPE. The closing of the transaction is subject to customary closing conditions, including regulatory, shareholder and third-party approvals.
Morgan Stanley, KPMG Corporate Finance and Shardul Amarchand Mangaldas were the advisors to SPE, while Zee was advised by KPMG, JP Morgan, Trilegal and Boston Consulting Group.