Zee Entertainment Enterprises Ltd and Sony Pictures Networks India Pvt Ltd (SPNI) have signed definitive agreements for a merger that will see them combining their networks, digital assets, production operations and programme libraries into a $ 2billion media powerhouse.
In September, the two media giants had signed a non-binding term sheet that provided for an exclusive negotiation period of 90 days during which they conducted mutual due diligence.
While the merger is expected to be completed in 8-10 months, it comes amid a legal dispute between Zee and its largest shareholder Invesco, which had demanded the removal of Zee’s managing director and chief executive officer Punit Goenka along with the appointment of six independent directors.
According to the terms of the agreement, Sony Pictures Entertainment Inc, the parent of SPNI, will indirectly hold a majority 50.86 per cent in the merged entity.
The founders of Zee will hold 3.99 per cent and public shareholders, 45.15 per cent.
Goenka will be the managing director and chief executive officer of the merged entity. The majority of the board of directors will be nominated by the Sony group and will include the present SPNI managing director and CEO, N.P Singh.
Singh will assume a broader executive position at Sony Pictures Entertainment (SPE) as chairman, Sony Pictures India, which is a division of SPE.
The merger will need the approval of the Competition Commission of India (CCI), the National Company Law Tribunal (NCLT), the stock exchanges and the Centre’s information and broadcasting ministry. It will also require the approval of 75 per cent of Zee shareholders.
Under the terms of the definitive agreements, the shareholders of Zee will get 85 shares of the merged entity for every 100 shares with them. The transaction will initially see the stake of the Zee promoters declining to around two per cent from four per cent at present.
SPE Mauritius, a Sony arm, will pay Rs 1,101 crore to Essel Mauritius, a promoter firm of the Subhash Chandra group as a non-compete fee . The sum will be infused by Essel into SPNI, giving the Zee founders an additional 2.11 per cent stake in the merged company.
The founders can also raise their shareholding up to 20 per cent, the agreement states.
Ahead of the of the merger, SPNI will have a cash balance of $1.5 billion to be built through an infusion by its current shareholders and the promoters of Zee.
Speaking to analysts in a conference call, Goenka said the shares of Zee would be delisted for three weeks after all the approvals are obtained — after which the merged company will start trading on the bourses.
There will be no tax implications on the individual shareholders due to this process, Goenka said.
He said the funds infused by Zee and Sony would be utilised towards pursuing M&A opportunities in the digital space, bidding for premium content such as sports apart from growing organically in the digital or OTT business.
Replying to a question, he said the capital allocation would be decided by the new board and that the merged company will remain a dividend paying company. The cash infusion by Sony has been made to have control over the amalgamated firm in terms of shareholding, Goenka said. He added that though the merged company would chase important assets such as the IPL, it would not be too aggressive in its bids.
A statement from Zee
Entertainment said that the combination would explore synergies and are well positioned to meet the growing consumer demand for premium content across entertainment touchpoints — given their strengths in scripted, factual and sports programming, respective distribution footprints across India and iconic entertainment brands
Shares of Zee, however, ended marginally lower as investors resorted to profit booking after the announcement. At the BSE, the share settled at Rs 348.70 — a drop of 0.09 per cent over the last close.
Analysts said that it was a win-win deal for both the companies and the duo could pose tough competition to other platforms such as Netflix and Amazon.
“In the broadcasting space, they would be numero uno which will give them tremendous pricing power especially on the ad revenue front,” Vivek Menon, co-founder of NV Capital, said.
Further, the investments in content creation would increase as there would be a greater focus of both on OTT platforms Sony Liv and ZEE5, Menon said.
“With the infusion of additional capital in excess of $1 billion, they could compete aggressively with Amazon and Netflix. There would also be a lot of competition for marquee sports properties which is currently housed in Star and coming up for renewal,’’ he said.
