Zee and Sony to merge subject to approvals

Zee today announced that it’s board has given an in principle approval for the merger of Zee Entertainment Enterprises Limited (ZEEL) and Sony Pictures Networks India (SPNI). Rumours of talks between ZEEL and SPNI have been happening since 2019 but guess Covid delayed the process.

Key points to note –

  • Approval has been given to proceed for the next steps including due diligence, definitive agreeements, requisite approvals etc. ZEEL and SPNI have signed a ‘non-binding’ termsheet and there is an exclusivity period of 90 days for the transaction.
  • Both the businesses will be merged and the merged entity will be a listed Company in India.
  • In the merged entity SPNI will hold majority at 52.93% and ZEEL the balance 47.07%. This is primarily because SPNI only will be infusing USD 1.575 bn (approx 12,000 crore) in the merged entity to fund growth. As per Company’s press release this amount has allowed SPNI to increase it’s stake from 38.75% to 52.93% implying a total value of the merged entity at Rs 85,000 crore and ZEEL’s stake at Rs 40,000 crore (for easy reference ZEEL was valued at Rs 24,000 crore before merger was announced).
  • Puneet Goenka will continue to be the MD and CEO of the merged entity. However, majority of the directors will be nominated by the Sony group.
  • Promoter family of ZEEL, that currently own 4% of ZEEL will be allowed (optional) to increase stake upto 20% in the manner that is in accordance with the applicable laws. This I believe would be needed to be done before the merger.

For easy reference, in 2017, Sony had also acquired the sports business (Ten Sports) from Zee – so the two groups have a proven history of dealing with each other.

The proposed merger definitely seems to be in the right direction. ZEEL has been facing tremendous pressure in an evolving Indian media content industry.

There have been questions raised on the corporate governance of the Company and recently Invesco had sought a major management reshuffle. As a part of that reshuffle, Invesco had also wanted removal of Puneet Goenka, who as per the merger terms is being proposed to continue.

Shareholders approval for the proposed merger would be interesting to watch, though I personally think that majority would be happy to provide the requisite approvals. Mechanics of the proposed 4% to 20% increase in the promoter family stake would surely draw lot of attention.

Considering everything, it’s a much needed breather for ZEEL shareholders – unless there are counter moves by other content hungry competitors !

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