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For Sony Pictures Networks India, which on Wednesday proposed to acquire its much larger rival Zee Entertainment Enterprises Ltd, it’s a case of being successful at a second go.

Zee and Sony had explored a deal in 2019 when media reports said the two companies were close to a deal and Sony would acquire a stake in Zee, and the latter’s promoter family would use the proceedings to pare debt.

But the deal fell through due to differences over structure and valuations.

The transaction that produced a non-binding term sheet early morning on Wednesday originated in early 2020 when Eric Moreno, Sony’s executive vice-president for corporate development and M&A, met with a Mumbai-based investment banker in Los Angeles and discussed a completely different deal structure, a person aware of the development said, asking not to be named.

There was some wariness at Sony’s corporate headquarters over pursuing a target that had once proven elusive. But by October 2020, once Zee managing director Punit Goenka expressed interest in the new structure, the deal-making activity started gathering pace at both ends, with a small team of bankers and lawyers working secretly.

By February 2021, sentiment turned positive at Sony’s global headquarters in Los Angeles. But the work that had to go into the details of the takeover by a smaller private company of a larger listed entity involved the resolution of complex questions over valuation, taxation and business opportunities, as well as compliance with securities and competition law.

As the deal progressed, the Goenka family’s struggles with debt played out parallelly, turning their control over the company despite a small shareholding, vulnerable.

R. Gopalan, chairman of Zee Entertainment, said the conversation with Sony has been on for 7-8 months, and the timing is a mere coincidence. “These talks were going on separately. They had to come to some conclusion. We had to take a call on whether to accept (the deal) or not. The talks have come to a natural conclusion. But it just so happened that the talks have concluded at a time when requisition notice (for EGM) has been issued," Gopalan said.

Gopalan said only the promoter family and few top officials of the company were privy to the deal negotiations. The low promoter stake, making the company easy prey for a hostile takeover, and requirement of cash - made Zee accept the Sony proposal.

“A lot has changed over the last two-three years. Calculations changed. If you asked me if the current Sony deal is comparable to what the talks were in 2019, I would say that the deal is certainly not as good as it was back then. But now, base conditions changed," an executive privy to the development said, requesting anonymity.

KPMG Corporate Finance acted as the banker on both sides.

Gopalan said he was not aware if Invesco Developing Markets Fund was kept in the loop as this was a one-on-one deal.

“We wanted to maintain confidentiality," he said, adding that the deal is based on studying past mergers in the entertainment industry.

The unidentified executive cited above said shareholders would support the transaction because it has been done with their best interest in mind.

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