• Punit Goenka stays as MD and CEO, the merger will fend off Invesco that wants him out
• The fate of NP Singh, MD & CEO of SPN, is yet unknown.
• The combined entity will own 75 TV channels, 2 video streaming services (ZEE5 and Sony LIV), two film studios (Zee Studios and Sony Pictures Films India) and a digital content studio (Studio NXT), making it the largest entertainment network in India, bigger than Star & Disney India.
• They will also have over Rs 13,600 crore in revenues and an employee count of over 4,000
• If the merger goes through, it will be one of the few cases where the promoters managed to remain in control of their company despite losing significant stake and investors’ trust.

Punit Goenka, MD and CEO of Enterprises (ZEE), has found his white knight in Sony Corp and set in motion a merger that will fend off the largest investor Invesco, which sought his removal from ZEE’s board.

Zee-Sony Pictures Networks India merger: Details of the big bang entertainment deal explained

Sony has signed a non-binding merger deal with Zee Entertainment. ET’s Gaurav Laghate takes you through the deal’s contours, which will create an entertainment behemoth with 75 channels and how company promoter Subhash Chandra proved once again that he is a master at the art of making a deal when the chips are down. Watch

As part of the proposed merger, which the board of directors of ZEE approved in-principle on Tuesday night unanimously, will allow shareholders of Sony Pictures Networks India (SPN) – a step-down subsidiary of Japanese multinational conglomerate Sony Corp – to hold a majority stake in the merged entity.
Based on the existing estimated equity values of ZEE and SPN, the indicative merger ratio would have been 61.25% in favour of ZEE. However, SPN shareholders will also infuse growth capital into SPN as part of the merger so that SPN has approximately $1.575 billion (around Rs 11,615 crore) at closing, for use in pursuing other growth opportunities.

ZEE said that with the proposed infusion of growth capital into SPN, the resultant merger ratio is expected to result in SPN holding 52.93% stake in the merged entity, while ZEE shareholders will own the remaining 47.07% stake.

The merged entity will remain a publicly listed entity in India with Goenka as MD & CEO, while NP Singh, MD & CEO of SPN, is likely to be on the board of the company.

The majority of the board of directors of the merged entity will be nominated by Sony Group.

“Sony is firmly committed to investing in India. SPE (Sony Pictures Entertainment) will have a majority stake in the combined company, and we expect that NP will hold a leadership role on its board of directors,” Ravi Ahuja, chairman of Global Television Studios and Sony Pictures Entertainment Corporate Development, wrote in an internal mail to the employees.

“ZEE and SPN are among India’s largest media and entertainment companies across genres, languages, and integrated content platforms and resonate strongly with consumers. The combination of ZEE and SPN will bring together the strongest leadership teams, content creators, and high-quality series and film libraries in the media business and will create a combined content platform that can compete with domestic and global platforms and accelerate that region’s transition to digital,” Ahuja said in the mail, a copy of which was accessed by ET.

With the ZEE board authorising the management to activate the required due diligence process, both ZEE and SPN have signed an exclusive non-binding term sheet to combine their linear networks, digital assets, production operations and content libraries.

The combined entity will own 75 TV channels, two video streaming services (ZEE5 and Sony LIV), two film studios (Zee Studios and Sony Pictures Films India) and a digital content studio (Studio NXT), making it one of the largest entertainment networks in India.

As per the last available financial details, they have over Rs 13,600 crore in revenues and an employee count of over 4,000.

Meanwhile, the promoters of the two companies will also sign certain non-compete arrangements as part of the transaction.

According to the term sheet, the promoter family of ZEE is free to increase its shareholding from the current 3.99% to up to 20%, in a manner that is in accordance with applicable law.

The final transaction will 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 ZEE’s shareholders.

“The board of directors at ZEE have conducted a strategic review of the merger proposal between SPN and ZEE,” said R Gopalan, chairman, ZEE. “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 ZEE. We have unanimously provided in-principle approval to the proposal and have advised the management to initiate the due diligence process.”

Gopalan added that ZEE continues to chart a “strong growth trajectory” and the board firmly believes that this merger will further benefit ZEE.

“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 ZEE for their approval,” Gopalan said.

The non-binding term sheet provides an exclusive negotiation period of 90 days during which ZEE and SPN will conduct mutual diligence and negotiate definitive, binding agreements. If the merger goes through, it will be one of the few cases where the promoters managed to remain in control of their company despite losing significant stake and investors’ trust.

“We are only at the beginning of what will likely be a months-long process. The next 90 days will be an exclusive negotiating period for both companies to conduct due diligence and negotiate definitive documents,” Ahuja said. “I want to thank NP and his teams at SPN for their hard work and dedication, leadership at Sony Group HQ for their support, and corporate development and legal teams, specifically Erik Moreno (EVP, Corporate Development and M&A, SPE), John Fukunaga (EVP, Corporate Legal and deputy general counsel, SPE), and Eric Gaynor (SVP, corporate legal, SPE) and their teams, who I don’t think have slept much in the last several days!”

This is not the first time Sony has tried to acquire ZEE.

In 2019, when Subhash Chandra was scouting for prospective buyers to repay lenders, Sony was one of the three shortlisted companies he was in talks with. However, the talks failed due to differences over valuation and ultimately, Chandra sold close to an 11% stake to Invesco, which became the largest investor in ZEE with a 17.88% stake.

On September 11, two of Invesco’s funds – Invesco Developing Markets Fund and OFI Global China Fund – sent a notice to ZEE, calling for an extraordinary general meeting (EGM) seeking the removal of Goenka.

Invesco also wanted the removal of two other directors – Ashok Kurien and Manish Chokhani – from the company’s board.

Both Kurien and Chokhani quit last Monday, despite being up for reappointment during the annual general meeting on September 14th.

The current promoter holding in ZEE is 3.99% and the market cap has come down to Rs 24,555.58 crore on Tuesday.

The shares of ZEE closed at Rs 255.65 apiece on BSE on Tuesday, up 0.14%.

Interestingly, after the deal with ZEE didn’t fructify, SPN initiated talks with Reliance Industries-controlled Viacom18 for a similar merger in November 2019. However, the on-again-off-again deal also didn’t go through with Reliance ultimately pulling the plug in October last year, after months of negotiations.

In 2016, SPN had acquired the sports broadcast business of ZEE, housed under Ten Sports brand, for $385 million, in an all-cash deal.