ZEE-Sony Merger | Why did Zee Entertainment decide to merge with Sony?

ZEE-Sony Merger | Why did Zee Entertainment decide to merge with Sony?

On September 22, the board of Zee Entertainment Enterprises (ZEEL) accepted a non-binding term sheet with Sony Pictures Networks India to consolidate their businesses, with Sony's promoters investing Rs 11,615 crore ($1.57 billion) in the merged entity as growth capital, making it India's most extensive entertainment network with approximately $2 billion in revenues and a 26% viewership share. The statement resulted in a 9.99 per cent increase in Zee stock.

Following the infusion of growth money, ZEEL shareholders own around 47 per cent of the combined company, while Sony India promoters own 53 per cent.

Zee-Sony Merger - Division of the Shares and Profits
Previous ZEEL Deals
Zee-Sony Merger - Challenges Companies may confront
Zee-Sony Merger - How is it Beneficial for Both Companies?

ZEEL-Sony Merger

Zee-Sony Merger - Division of the Shares and Profits

Punit Goenka - CEO of ZEE
Punit Goenka- CEO of ZEE

Based on the current anticipated equity values of ZEEL and Sony India, the stated merger ratio would have been 61.25 per cent in favour of ZEEL.

In exchange for current ZEEL backers and their affiliates pledging not to compete with the combined firm, Sony India's promoters agreed to transfer roughly a 2% interest in the merged entity. The Subhash Chandra family would own 4% of the amalgamated business, which established India's first private sector entertainment network, with the opportunity to grow their holding to 20%. The family liquidated their ZEEL shareholding to repay Rs 13,000 crore in loans from Indian banks for failed diversifications such as infrastructure projects.

While Sony's promoters will have the right to appoint the majority of the board's directors, Punit Goenka, ZEEL's CEO and MD will lead the amalgamated firm.

The nomination compensation committee, the board of directors, and the shareholders of the combined firm must all approve Goenka's appointment.

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Previous ZEEL Deals

Sony Pictures N is attempting a deal with ZEE for the second time. SPN was one of the few shortlisted strategic investors with whom ZEE was negotiating to sell the promoters' shareholding and infuse funds for development.

ZEE could not reach an agreement with a strategic investor in 2019 and was obliged to settle for a financial one due to a liquidity shortage. Even though most of the promoters' debt had been paid off, the firm still needs development capital.

During the lockdown, ZEE was considering various funding possibilities, including loans, as it is a debt-free firm. However, the board of directors and promoters believe that a strategic investor will be the first choice.

According to those familiar with the situation, when the transaction with ZEE fell through owing to value issues, SPN attempted to combine with Viacom18. That contract fell through in October of last year, and SPN's parent business began hunting for new partners, they added.

Due to the rough treatment of stockholders, the purchase was likely to face legal challenges, with the Subhash Chandra family receiving an extra 2.1 per cent stake from Sony promoters as a non-compete fee.

Zee-Sony Merger - Challenges Companies may confront

The merger conditions include a non-compete agreement between the ZEEL promoters and Sony Pictures Networks India, with the ZEEL promoters receiving an additional 2.1 per cent interest in the combined firm.

Obtaining ZEEL shareholders' approval for the planned merger and the continuance of ZEEL's MD and CEO as the head of the merging company for the next five years may also pose hurdles, considering the tense relationship between certain institutional owners of ZEEL and the ZEEL board.

However, the amalgamated entity's planned structure's board of Directors may assuage institutional shareholders' worries. Because the Sebi Takeover Code exempts the acquisition of interest via a Scheme of Arrangement for amalgamation/merger, there will be no open offer for ZEEL shares.

The sale was accelerated when Invesco, one of ZEEL's significant owners, requested an emergency general meeting within three weeks to remove Goenka. After proxy advice companies reported corporate governance issues in the business that ZEEL later funded, two directors, Manish Chokhani and Ashok Kurien resigned from the ZEEL board.

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Zee-Sony Merger - How is it Beneficial for Both Companies?

Analysts estimate that the transaction will create a new media and entertainment powerhouse in India, with revenues of Rs 15,000 crore.

According to analysts, the deal is a strategic match since Sony is a big player in the Hindi general entertainment channel (GEC) market, mainly non-fiction. Zee is strong in movies of all genres and the regional GEC area. Zee has a 17% network viewing share, whereas Sony has a 10-12% share. As a result, it would be a solid strategic match in broadcast, digital, and content.

In terms of synergies, Sony is performing well in sports and mainstream GEC, but Zee has a high recall on regional genres, which Sony has less of or none of. Sony's foreign repertoire would be available for ZEE to exploit and monetize.

With this acquisition, ZEE Entertainment's corporate governance issues should be resolved, boosting investor trust. Both companies have a robust film library that can be exploited for OTT and TV offerings. The combined firm will be better positioned to compete with Disney on both the distribution and advertising fronts.

According to Zee's annual report, its network in India connects over 3,000 brands with their customers.

According to ZEEL's aggregated figures, the company made a profit of Rs 800 crore on revenues of Rs 7,730 crore in the fiscal year ending March this year.

In March 2020, Sony Pictures Network India made a profit of Rs 976 crore on revenues of Rs 5,846 crore, with cash on books of Rs 11,000 crore.

Following the announcement of the merger, ZEEL's shares soared 32% to Rs 337 per share, valuing the company at Rs 32,378 crore.

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ZEE and SPN are two of India's most popular media and entertainment companies, having strong consumer appeal across genres, languages, and platforms. The combination of these two companies will bring together the media industry's most powerful leadership teams, content creators, and high-quality series and film libraries, resulting in a combined content platform that can compete with domestic and global platforms while also accelerating the region's digital transition.


Is Sony and ZEE merging?

Zee had announced merger with Sony on September 22.

Who is the owner of Zee Entertainment?

News Corporation is the parent organization of Zee Entertainment and owns it.

Who is the CEO of ZEE?

Punit Goenka is the CEO of ZEE since 2008.

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