Zee board okays merger with Sony
Sony will hold 53% stake in the merged entity, while Zee will hold the rest
NEW DELHI: Sony Group Corp.’s India unit emerged as a white knight on Wednesday, offering to buy Zee Entertainment Enterprises Ltd, as the company’s embattled founders fought to foil a management change that the broadcaster’s largest investors demanded.
After a late-night board meeting on Tuesday, Zee told stock exchanges in the early morning that Sony Pictures Networks India proposed a merger under which the company will own 53% of the combined entity. Zee shareholders, including Subhash Chandra’s family, will own the rest. As part of the nonbinding agreement, Sony Group also proposed to invest $1.58 billion in the merged company to create content, build digital platforms and bid for sports broadcasting rights.
Sony will get to nominate a majority of the directors on the board, but Chandra’s son, Punit Goenka, will continue as the managing director for five years. The merged company will remain listed on the stock exchanges. Shares of Zee surged 32% to ₹337.10 on Wednesday following the announcement.
The combined entity is expected to become the largest broadcaster in India with nearly a third of the market share in the entertainment space, surpassing Disney’s Star India network.
Abneesh Roy, executive vicepresident at Edelweiss Financial Services, said the merged network would have a 27-28% market share versus Star’s 24%.
The proposed deal is expected to provide some relief to Zee’s controlling shareholders and Goenka. Last week, Zee’s top shareholders—invesco Developing Markets Fund and OFI Global China Fund Llc—called a special shareholders’ meeting to seek a board recast, including the removal of Goenka as a director, citing corporate governance concerns.
Invesco and OFI, which own a combined 17.88% of Zee, also sought the appointment of six independent directors. The transaction is subject to the completion of due diligence and execution of definitive agreements and regulatory and other clearances, including the approval of Zee’s shareholders, the companies said in a statement.
According to the agreement, Zee and Sony have 90 days to inspect each other’s assets and sign a binding agreement.
The merger will need approval from 75% of Zee shareholders, according to Shriram Subramanian, founder of proxy advisory firm Ingovern Research Services Pvt. Ltd.
Obtaining shareholders’ approvals for the proposed merger and the continuation of Goenka as managing director may be challenging, given the stressed relationship between the two institutional shareholders and the management, said Ravishu Shah, managing director and co-head, valuation, RBSA Advisors.
According to the term sheet, Chandra and his family are free to raise their shareholding from the current 4% to as much as 20% later. This may not sit well with some investors, said Edelweiss’ Roy in a note released on Wednesday.
“This is a peculiar business arrangement, favouring Zee promoters to increase the stake. Sebi and Competition Commission will examine this minutely because there cannot be a different approach for promoters and other shareholders. This stipulation makes it appear to be a board coup against Invesco,” said a media industry veteran, who declined to be named.
Invesco representatives in India didn’t immediately respond to an email seeking comment.
The merger “will create a combined content platform that can compete with domestic and global platforms and accelerate that region’s transition to digital,” Ravi Ahuja, chairman, Global Television Studios and Sony Pictures Entertainment Corporate Development, said in an internal email to employees