4 min read.Updated: 23 Dec 2021, 01:06 AM ISTLata Jha
Transaction needs approval from 75% Zee shareholders to go through
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NEW DELHI :
Sony Group Corp. has agreed to merge its India unit with Zee Entertainment Enterprises Ltd, in a move that will combine their television networks, digital assets, libraries and streaming platforms to create the country’s largest broadcaster.
The Japanese company will own a 50.86% stake in the merged entity, while Zee Entertainment’s promoters will own 3.99%, according to an exchange filing on Wednesday. Zee Entertainment’s public shareholders will own the remaining 45.15%. The transaction will now need to be cleared by shareholders and regulators.
The final accord between Zee and Sony comes three months after both parties signed a non-binding pact amid a public spat between Zee’s promoters and the company’s largest investor, Invesco Developing Markets Fund, which owns about 18% in the company.
As part of the deal, Zee founder Subhash Chandra’s son, Punit Goenka, will continue to be the combined company’s managing director and chief executive.
Zee’s founding family is embroiled in a bitter battle with Invesco, which had called a special shareholders’ meeting of the broadcaster to remove Goenka as director, besides proposing the appointment of six independent directors. It later approached a division bench of the Bombay high court to challenge an earlier order that restrained the US fund manager from calling the meeting. Zee challenged Invesco’s attempt to restructure the board in courts and alleged that the US investor is trying to take over India’s largest publicly-traded broadcaster at the behest of another company.
A spokesperson for Invesco did not respond to Mint’s queries for a comment on the merger.
As part of the deal, the promoters of Zee agreed to limit the stake that they may own in the combined company to 20%. This, however, does not provide the promoters with any pre-emptive or other rights to acquire equity of the combined company from Sony Group, the combined company or any other party, the statement said.
As part of the deal, Sony will pay a non-compete fee to promoters of Zee, which they will use to infuse primary equity capital into Sony Pictures Networks, allowing them to buy shares of the company. The shares would eventually equal approximately 2.11% of the combined company’s shares.
The majority of the directors of the combined company will be nominated by Sony and will include current Sony Pictures Networks managing director and CEO N.P. Singh. He will also assume a broader executive position at Sony Pictures Entertainment Inc. (SPE) as chairman of Sony Pictures India. Singh will report to Ravi Ahuja, Sony Pictures Entertainment’s chairman of Global Television Studios.
On Wednesday, Goenka told analysts that he expects the entire merger to be completed in “eight-to-ten months". The current promoters of Zee, who hold less than a 4% stake in the company, will continue as promoters of the merged entity, he said, adding that Zee has not discussed the merger with shareholders in the past three months. On the question of a fallback option if Zee is not able to get 75% investor approval, Goenka said: “There is no fallback option. We continue like before."
Kritika Agarwal, associate partner at legal firm Majmudar & Partners, said the merger is subject to shareholders’ approval. “With Invesco holding almost 18% shares and assuming that it will not vote for the merger, the final vote may be close. Another challenge may be to get a clearance from the Competition Commission of India as the anti-trust regulator may want to closely scrutinize the merger," Agarwal said.
Pritha Jha, partner at legal firm Pioneer Legal, said that for Zee, the tussle with Invesco is far from over, and whether the deal is sweet enough for Invesco to consider backing off remains to be seen since Goenka continues to stay as MD, though the rest of the board will now be nominated by Sony.
However, media industry analysts said both firms should complement each other. While Sony has a rich catalogue of sports and mainstream general entertainment channels (GECs), Zee has great recall in the regional space. Both have very strong movie libraries, they said.
Karan Taurani, senior vice-president, Elara Capital, said the merger will result in favourable cost synergies for the television business, with increased profitability and good content offering on the digital front. He estimated the Zee-Sony combine to command 22% of the advertising revenue market.
Taurani expects the consolidated digital business to touch ₹9,100 crore by FY24. He said there is potential for revenues to expand as a big shift to SVoD (subscription video-on-demand) is likely to emerge in the coming years.
Apart from enabling the combine to drive content creation across platforms and strengthen its footprint in the digital ecosystem, the statement from Zee and Sony Pictures Networks said the latter will have a cash balance of $1.5 billion at closing, which would help “bid for media rights in the fast-growing sports landscape and pursue other growth opportunities." The cash will be leveraged to submit a competitive bid for broadcast rights of the Indian Premier League that could go upwards of ₹32,000 crore for five years.
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