So will the Zee-Sony merger go through?. Punit Goenka to be Big Boss of combined entity

22 Sep,2021



By Our Staff


At any other time, the news that Zee Entertainment will merge with Sony Pictures Network India wouldn’t have been a surprise. But since it’s come in less than two weeks since the public display of hostility of key investors, it took everyone by surprise. Including those who’ve been tracking the sector for a while.


So here’s what we know: the Board of Directors of Zee Entertainment Enterprises Limited (ZEEL) held a meeting yesterday (Tuesday, September 21, 2021) and unanimously provided an in-principle approval for the merger between Sony Pictures Networks India (SPNI) & ZEEL. Sony Pictures also sent us a communique stating this the same.


The question which everyone seems to be asking is how will the two investors holding a significant minority investment of 18-odd per cent react to this. Will they – given their buy of Rs 400 per share and the prevailing rate of Rs 320 (at 1pm today) be happy with the way things are.


Will there be a settlement between Zee, Sony and the unhappy investors? Or will they make life difficult for the powers that be.


And also very importantly, will Zee founder and chairman emeritus Subhash Chandra have a role in the merged entity? The reason for this question is that there were charges by some quarter that despite exiting from an executive role, he continued to steer the company.


The due diligence will start. In the past, we have had some stories about Zee acquiring an FM station network and a music network that have not materialised. But this is different and much larger.


A few years back, Zee unveiled a new identity with the tagline ‘Extraordinary Together’. Will the mega entertainment merchants Sony and Zee indeed be extraordinary together?


Here’s the press release issued by Zee Entertainment:

The Board has evaluated not only on financial parameters, but also on the strategic value which the partner brings to the table. The Board concluded that the merger will be in the best interest of all the shareholders & stakeholders. The merger is in line with ZEEL’s strategy of achieving higher growth and profitability as a leading Media & Entertainment Company across South Asia. The Board has authorized the management of ZEEL to activate the required due diligence process.


The shareholders of SPNI, will hold a majority stake in the merged entity. The shareholders of SPNI will also infuse growth capital into SPNI as part of the merger such that SPNI has approximately USD 1.575 billion at closing, for use in pursuing other growth opportunities.


Basis the existing estimated equity values of ZEEL and SPNI, the indicative merger ratio would have been 61.25% in favour of ZEEL. However, with the proposed infusion of growth capital into SPNI, the resultant merger ratio is expected to result in 47.07% of the merged entity to be held by ZEEL shareholders and the balance 52.93% of the merged entity to be held by SPNI shareholders.


ZEEL and SPNI have entered into a non-binding term sheet to combine both companies’ linear networks, digital assets, production operations and program libraries. The term sheet provides an exclusive period of 90 days during which ZEEL and SPNI will conduct mutual diligence and finalize definitive agreement(s). The merged entity will be a publicly listed company in India.


As part of the transaction, Mr. Punit Goenka will continue to be the Managing Director and CEO of the merged entity. Further, certain non-compete arrangements will be agreed upon between the promoters of ZEEL and the promoters of SPNI. According to the term sheet, the promoter family is free to increase its shareholding from the current ~4% to up to 20%, in a manner that is in accordance with applicable law. Majority of the Board of Directors of the merged entity will be nominated by Sony Group.


It is anticipated that the final transaction would be subject to completion of customary due diligence and execution of definitive agreements and required corporate, regulatory and third- party approvals, including the votes of ZEEL’s shareholders.


ZEEL’s strong expertise in content creation and its deep consumer connect established over the last 3 decades, coupled with SPNI’s success across entertainment genres (including gaming and sports) will add significant value to the merged entity and its management team, thereby increasing shareholder value multifold.


Speaking on the development, Mr. R. Gopalan, Chairman, ZEE Entertainment Enterprises Ltd. said, “The Board of Directors at ZEEL have conducted a strategic review of the merger proposal between SPNI and ZEEL. As a Board that encompasses a blend of highly accomplished professionals having rich expertise across varied sectors, we always keep in mind the best interests of all the shareholders and ZEEL. We have unanimously provided an in-principle approval to the proposal and have advised the management to initiate the due diligence process.


ZEEL continues to chart a strong growth trajectory and the Board firmly believes that this merger will further benefit ZEEL. The value of the merged entity and the immense synergies drawn between both the conglomerates will not only boost business growth but will also enable shareholders to benefit from its future successes. As per legal and regulatory guidelines, at the required stage, the proposal will be presented to the esteemed shareholders of ZEEL for their approval.”


Under the guidance of the Board, the management of ZEEL, ably led by Mr. Punit Goenka, continues to steadily work towards achieving higher profitability in line with its set goals for the future. With this corporate development, the merged entity will result into an accelerated growth and a significant opportunity to create tremendous value for all its stakeholders.


And here’s the communique issued by Sony Pictures:

Sony Pictures Networks India (SPNI) and Zee Entertainment Enterprises Ltd. (ZEEL) today announced that they have entered into an exclusive, non-binding Term Sheet to combine both companies’ linear networks, digital assets, production operations and program libraries.  The non-binding Term Sheet provides an exclusive negotiation period of 90 days during which ZEEL and SPNI will conduct mutual diligence and negotiate definitive, binding agreements. The combined company would be a publicly listed company in India and be better positioned to lead the consumer transition from traditional pay TV into the digital future.


The merger of ZEEL and SPNI would bring together two leading Indian media network businesses, benefitting consumers throughout India across content genres, from film to sports. The combined company is expected to benefit all stakeholders given strong synergies between ZEEL and SPNI.


Under the terms of the non-binding Term Sheet, Sony Pictures Entertainment, the parent company of SPNI, would invest growth capital so that SPNI has a cash balance of approximately USD $1.575 billion at closing for use to enhance the combined company’s digital platforms across technology and content, ability to bid for broadcasting rights in the fast-growing sports landscape and pursue other growth opportunities. Sony Pictures Entertainment would hold a majority stake in the combined company. Current ZEEL Managing Director & CEO Punit Goenka is to lead the combined company. The combined company’s board of directors would include directors nominated by Sony Group and result in Sony Group having the right to nominate the majority of the board members.


It is anticipated that a final transaction would be subject to completion of customary due diligence, negotiation, and execution of definitive binding agreements, and required corporate, regulatory and third-party approvals, including ZEEL shareholder vote.


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