ZEE, SONY SIGN MERGER DEAL | 23 December, 2021

Zee Entertainment Enterprises Ltd. (ZEEL) and Sony Pictures Networks India (SPNI) have finally signed a merger agreement despite a legal battle between ZEEL’s founders and its largest shareholder, Invesco of the US. Since the merger requires the approval of 75% of the shareholders, the support of Invesco might be crucial as it holds 18% shares while the founders hold less than 4%. Although Invesco had welcomed the proposed merger, it was against any terms which would unfairly reward the founders at the expense of other shareholders. According to the deal, Sony will pay a non-compete fee of Rs. 1,100 crore to Zee’s founders, which they will use to acquire 2% in the merged entity. This would help the founders of Zee to maintain their 4% shareholding. The Zee founders have been permitted to raise their stake to 20% from 4% in the combined entity through open market purchases. The merger will dilute Invesco’s stake to 8%.

It may be recalled that Invesco had requisitioned Zee to convene a special general meeting to remove CEO Punit Goenka, son of founder Subhash Chandra, over alleged “corporate governance failures”. But Zee got a judicial order against Invesco. The latter challenged this and the matter is currently in the Bombay high court.

The definitive merger agreement between Zee and Sony retains the terms of the preliminary merger proposal which was first announced in September this year. According to the terms of the merger, there will be a cash balance of $1.5 billion (after Sony infuses $1.3 billion) in the merged entity.

Besides the approval of Zee’s shareholders, the merger is subject to regulatory and other third-party approvals. ZEEL will be delisted for three weeks as soon as the approvals are in place. Punit Goenka, as Managing Director and CEO, will lead the combined entity which will be India’s second-largest media and entertainment company with revenues of more than $2 billion. Sony’s film and music businesses are not a part of the merger deal. ZEEL’s music and film businesses will continue to be a part of the merged entity.

A new Board of Directors of nine members will be formed for the new entity, with Sony having more control on nominating the members.

The merger is likely to take eight to ten months to conclude. Sony will hold 51% in the combined entity. Zee will become a subsidiary of Sony USA after the merger. Sony Pictures Entertainment Inc., the parent company of SPNI, will be the promoter of the combined entity.

After the merger, the new entity is likely to have 27% market share in Indian broadcasting business, leaving behind other networks like Star-Disney (24%), Sun (10%) and Viacom (9%).