Zee-Sony to create largest entertainment network; Sony Pictures to infuse $1.58 billion in merged entity

By: |
September 23, 2021 3:45 AM

The merged firm will be a publicly-listed company in India, with ZEEL’s Punit Goenka continuing as its managing director and chief executive officer for five years.

ZEEL’s board, which met on Tuesday, also authorised its management to start a due diligence process for the merger.Janak Dwarkadas, the counsel for OFI Global China Fund, reiterated his earlier stance that ZEEL moving the Bombay High Court is a classic case of “forum shopping”.

Zee Entertainment Enterprises (ZEEL) on Wednesday said that its board has approved a merger of the company with rival Sony Pictures Networks India (SPNI), a subsidiary of Japan’s Sony Corporation.

Once this gets all the regulatory and shareholder approvals, it would create the country’s largest media and entertainment company. Both the companies, ZEEL and SNPI, have signed a non-binding term-sheet to combine their linear networks, digital assets, production operations and programme libraries. The term-sheet provides an exclusive period of 90 days, during which the companies will conduct mutual diligence and finalise a definitive agreement, ZEEL said in a statement.

As part of the deal, SPNI will also infuse about $1.58 billion in cash that could be used to pursue other growth opportunities, ZEEL added. Based on the estimated equity values of the two companies, ZEEL would have a holding a 61.25% stake in the merged firm. However, following the fund infusion, SPNI will hold a majority 52.93% stake and the remaining 47.07% stake will be held by ZEEL shareholders.

“ZEEL continues to chart a strong growth trajectory and the board firmly believes that this merger will further benefit ZEEL. The value of the merged entity and the immense synergies drawn between both the conglomerates will not only boost business growth but will also enable shareholders to benefit from its future successes,” ZEEL chairman R Gopalan said.

The proposal will be presented to ZEEL shareholders for their approval at the “required stage”, he added.

ZEEL’s board, which met on Tuesday, also authorised its management to start a due diligence process for the merger.

The merged firm will be a publicly-listed company in India, with ZEEL’s Punit Goenka continuing as its managing director and chief executive officer for five years.

According to the term sheet, the promoter family can hike its stake to 20% from the present about 4%. A majority of the board members of the merged entity will be nominated by Sony Group.

A final transaction would be subject to completion of due diligence, execution of definitive binding agreements and approvals, including ZEEL shareholders’ votes, SPNI said in a separate statement.

“ZEE was an extremely good franchise, which was well-led but due to promoters’ personal interest the business got killed completely. They had tampered with the balance sheet and so on,” Vinit Bolinjkar, head of research at Ventura Securities, said.

“ZEEL was typically facing problems on three fronts – growth, cash flows and business strategies – which were critical to shareholders. So now all these things have been addressed as Sony and ZEEL have got complimentary business strategies, and the deal will ensure the survival of Zee and also propelling Sony’s growth,” he added.

ZEEL’s board has been under pressure, after its foreign portfolio investors – Invesco Developing Markets Fund (formerly Invesco Oppenheimer Developing Markets Fund) and OFI Global China Fund – had sought removal of directors. The promoters, who together hold a 17.88% stake in ZEEL, had sought removal of directors Punit Goenka and non-executive directors Ashok Kurien and Manish Chokhani.

On their part, proxy advisory firms had also raised corporate governance concerns as ZEEL, including a pay hike to Goenka.

As part of the deal, Sony would also transfer some shares to the promoter as per a non-compete agreement, Goenka said in an analysts call.

Siddhartha Khemka, head – retail research, Motilal Oswal Financial Services, said, “ZEEL needs 3/4th shareholder approval. This is where the deal hangs – If the current shareholders and the board are not okay with Goenka running the show, then there is no reason for the deal to go through from the current shareholders.”

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