Zee-Sony merger wins CCI approval with modifications

The Competition Commission of India (CCI) on Tuesday approved the merger of Zee Entertainment Enterprises Ltd with Sony Pictures Networks India Pvt. Ltd. and Bangla Entertainment Pvt. Ltd, both part of the Sony Group Corp., accepting the modifications proposed by the companies to the deal they had announced last December.

The transaction entails the amalgamation of Zee and Bangla Entertainment Pvt. Ltd, engaged in acquiring rights for motion pictures and other content into Culver Max Entertainment Pvt. Ltd, part of the Sony Group. CCI stated that Culver Max Entertainment has film, sports and kids channels in India and global markets. In India, it reaches over 700 million viewers, the antitrust regulator said.

Without referring to the deal size, the competition watchdog said the $10 billion deal was in the nature of acquisition and amalgamation covered under CCI’s merger regulation threshold. Shardul Amarchand Mangaldas & Co., which represented Sony Pictures Networks India (SPN), said in a statement the company is now known as Culver Max Entertainment Pvt. Ltd.

“We are delighted to receive CCI approvals to merge ZEEL into SPN. We will now await the remaining regulatory approvals to finally launch the newly merged company. The merged company will create extraordinary value for Indian consumers and eventually lead the consumer transition from traditional pay TV into the digital future,” SPN said in a statement.

The modification to the transaction approved by the CCI involves Zee excluding a major general entertainment channel from the transaction, said a person privy to the development. “CCI has accepted the voluntary remedy proposed by the companies,” said the person, adding that it may involve either selling the channel in question or shutting it down.

The move seeks to alleviate CCI’s concern that India’s largest media merger may give Zee-Sony unprecedented pricing power, which may hurt the prospects of other TV channels in the entertainment broadcasting industry. Though Zee did not share the remedies proposed to CCI, in a statement, it said: “In its official communication issued today, CCI has granted the approval in Phase-1 after evaluating the official legal and economic submissions made by the company. Considering the immense value that the proposed merger will generate for all its stakeholders, the company has offered the necessary remedies in accordance with the regulator’s guidelines. The detailed order is awaited. The approval from CCI is yet another positive step in the overall merger approval process.”

In December 2021, the two companies said in a joint statement that the Japanese company would own a 50.86% stake in the merged entity, while Zee Entertainment’s promoters would own 3.99%. Zee Entertainment’s public shareholders will own the remaining 45.15%.

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. In addition, Sony will pay a non-compete fee to promoters of Zee, which they will use to infuse primary equity capital into SPN, allowing them to buy shares of the company. The shares would eventually equal approximately 2.11% of the combined company’s shares.

The statement then said most combined company directors will be nominated by Sony and will include current SPN 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.

Media industry analysts have pointed out that both firms complement each other. While Sony has a rich catalogue of sports and mainstream general entertainment channels (GECs), Zee has a great recall in the regional space. Both have very strong movie libraries, they said.

Karan Taurani, an analyst at Elara Capital Ltd, said there is no major overlap between the two companies and no large flagship TV channel is expected to go off the air. “In terms of viewership share across genres, Zee and Sony are below 40% as a combined entity in all genres, except the movie genre, which is above 50%. Therefore, any indication of a flagship urban GEC channel shutting down by either of the broadcasters is a big risk as that drives a reasonable portion of revenues due to higher pricing,” Taurani said.

According to BARC data, Zee and Sony command a total TV viewership share of approximately 24% (as of FY22), which is slightly higher than that of Star (20%), and there is potential for this to move upwards and even breach levels of Star TV given the right strategy on content and distribution, Taurani added.

“Multiple synergies exist for the merged entity, in the form of ad price hikes, cost savings on content, on the marketing and employee front and better bargaining power with which will lead to re-rating of valuation multiples on the TV segment,” Taurani said.