Zee Entertainment and Sony Pictures merge; Punit Goenka will be MD and CEO of ZEEL-SONY India

Zee Entertainment and Sony Pictures on Wednesday said they have gotten in-principle approval for an alliance that will join the two organizations’ linear networks, digital assets, production operations, and program libraries.

The Zee Entertainment Enterprises Ltd (ZEEL) on September 22, 2021, reported that its board of directors have unanimously given in-principle approval for the merger between ZEEL and Sony Pictures Networks India (SPNI). Punit Goenka will keep on being the Managing Director (MD) and CEO of the merged ZEEL-SONY. The united entity will be publicly listed in India.

R Gopalan, Chairman, Zee Entertainment said that ZEEL progresses forward a strong growth trajectory and the Board firmly believes that this consolidation will help ZEEL. The consolidation will help business development and enable shareholders to profit from its future victories, said Gopalan.

Zee Entertainment Enterprises Limited (ZEEL) on Wednesday reported a merger with Sony Pictures Networks India (SPNI). After the merger, Sony will invest $1.57 billion and will be the greater part shareholder with a 52.93% controlling stake. The shareholders of ZEEL, in the meantime, will hold a 47.07 percent stake.

Further, Zee Entertainment Enterprises Ltd (ZEEL) Managing Director and Chief Executive Officer Punit Goenka will lead the merged entity.

Sony Pictures Networks India (SPNI) said the merger would unite two merger Indian media network businesses, helping buyers all through India across content genres, from film to sports.

Sony Group Corp’s. Indian unit signed a non-binding deal to purchase the country’s biggest publicly traded TV station Zee Entertainment Enterprises Ltd., jumping on an ambushed organization whose shareholders have looked for evacuation of key authorities.

Zee shares hopped 20% after the deal declaration, giving it a market worth of $4 billion. About 53% of the merged entity would be possessed by Sony India shareholders and the rest by Zee’s holders, the organizations said. Sony shareholders will infuse capital into its unit so it will have about $1.58 billion of funds at closing, and a larger part of the board would be nominated by Sony.

The deal would extend Sony’s media business in the world’s second-most populous country while vaulting Zee Chief Executive Officer Punit Goenka to the top of a bigger entity. Goenka, whose expulsion Zee shareholders have looked for, would lead the combined organization, as per the terms of the deal.

Still, the proposed combination needs approval from 75% of Zee shareholders, as per Shriram Subramanian, founder of proxy advisory firm InGovern Research Services Pvt. Ltd. A vote is set to occur after the deal terms are finalized — Zee and Sony said they’re entering a 90-day exclusive talks period during which they’ll direct mutual diligence and negotiate a binding agreement.

The declaration adds one more twist to the fate of Zee after Invesco Developing Markets Fund and OFI Global China Fund LLC, which together hold about a 17.9% stake in the network, looking for an extraordinary general meeting of shareholders last week to remove Goenka alongside two board individuals. The evacuation was viewed as a transition to end the influence of founder Subhash Chandra’s family over the organization established in 1992, and which was once Rupert Murdoch’s Indian partner. The two board members resigned with immediate effect.

“There is nothing wrong in the two companies proposing a merger as even CEOs can initiate merger discussions and then approach shareholders for a vote,” Subramanian said. “Invesco did not have an alternate plan and hence, I would find it surprising if it is not supportive of this merger. As a fund, they would be interested in financial returns and clean governance.”

Invesco representatives in India didn’t promptly react to an email looking for comment. Directors present and voting in a Zee board meeting on Tuesday consistently gave in-principle approval to the merger, Zee said.

Chandra, a rice-trader-turned-media-mogul, and his family had cut down their stake in Zee to assist with paring debt at their more extensive Essel Group. The call to eliminate Goenka as a director came after Chandra, in a letter dated Aug. 3, said the group had risen out of financial stress and settled 91% of the total debt owed to 43 lenders.

“With Sony as a majority shareholder, and a likely reconstituted board, the merged entity would be the best solution Invesco could have hoped for,” Subramanian said.

The combined organization is relied upon to help all stakeholders given strong synergies between ZEEL and SPNI, said SPNI.

According to the deal, the shareholders of SPNI will hold a larger part stake in the merged entity.

This exclusive, non-binding pact to join the two organizations’ resources will enhance the combined organization’s digital platforms across technology and content, ability to offer broadcasting rights in the fast-growing sports landscape and seek after other development opportunities, said SPNI.

Further, Sony Pictures Entertainment, the parent organization of SPNI, would invest growth capital so SPNI has a cash balance of around USD 1.575 billion, SPNI said in a statement.

As per ZEEL, basis the current estimated equity values of Zee Entertainment Enterprises Ltd (ZEEL) and SPNI, the indicative merger ratio would have been 61.25 percent for ZEEL.

However, with the proposed mixture of growth capital into SPNI, the resultant merger ratio is relied upon to result in 47.07 percent of the merged entity to be held by ZEEL shareholders and the balance 52.93 percent of the merged entity to be held by SPNI shareholders, it said.

It likewise added that Zee Entertainment Managing Director and Chief Executive Officer Punit Goenka, who is confronting strain from two biggest shareholders of the organization – Invesco and OFI Global China Fund LLC – to stop the post, would lead the merged entity.

Last week, the two investment firms – which together hold 17.88 percent of the paid-up share capital of the organization that carries the right of voting had called an uncommon general meeting of shareholders looking to eliminate Goenka from the position.

The combined organization’s board of directors would incorporate directors nominated by Sony Group and result in Sony Group reserving the option to nominate most of the board members, said SPN statement.

ZEEL-Sony India merger – Key points

Zee Entertainment Enterprises Ltd (ZEEL) and Sony Pictures Networks India (SPNI) have entered into a non-binding term sheet to consolidate the production operations, linear networks, program libraries, and digital assets of the two organizations.

Sony India will inject a growth capital into ZEEL as a part of the merger so it has about $1.575 billion at the time of closing. In light of the current estimated equity values of ZEEL and Sony India, the indicative merger ratio would have been at 61.25 percent for ZEEL.

Nonetheless, with the proposed infusion of growth capital by Sony India, the merger ratio of ZEEL will be 47.07 percent while Sony India will hold a greater part stake of 52.93 percent in the merged entity. Sony India will reserve the right to appoint a majority of the board of directors in the merged entity.

ZEEL and Sony both have consented to a binding exclusivity for 90 days during which definitive and further non-compete agreements will be conducted and finalized. The merged entity will be publicly listed in India.

According to the term sheet, the promoters of ZEEL and Sony India can build the shareholding from the current 4% to 20 percent as per applicable law.

Strategic and business value of ZEEL-Sony India merger

ZEEL stated that the Board of Directors at ZEEL have done a strategic review of the merger between ZEEL and Sony India. They have assessed both the financial and strategic values that Sony India brings to the merger. The Board of Directors of ZEEL stated that the merger will be valuable to all shareholders and stakeholders.

The ZEEL-Sony India merger is as per the strategy of ZEEL which is achieving higher development and benefit as a leading media and entertainment organization across South Asia.

The deep customer interface and strong mastery in content production of ZEEL over the past 3 decades when combined with the achievement of Sony India across entertainment genres including sports and games will help the worth of the merged entity and its shareholders essentially.