The merged entity will almost draw level with sector leader Star India in terms of revenues and will potentially derive synergies from the varied presence of both ZEEL and SPNI. While ZEEL has a larger network viewership share than Sony, it derives most of its strength from regional general entertainment channels (GEC) and movies, whereas Sony has a stronger foothold in Hindi GEC and sports segments. The move is also aimed at scuttling the plan of Invesco Developing Markets Fund, a key investor, to take control of ZEEL.

SPNI had been on a lookout for a local partner in India to challenge the Star India leadership, and had also been in discussions with RIL-owned Viacom18 for a potential merger, but talks were called off last year after the firms couldn’t agree on points such as valuation and some merger clauses.

For the year-ending March 2020, Star India had reported revenues of Rs 14,337.46 crore, while ZEEL reported consolidated revenue from operations of Rs 8,129.86 crore, and SPNI reported a top line of Rs 5,961.10 crore.

With the ZEEL partnership, Sony could also see some of the gaps, particularly in its bouquet of entertainment channels that have largely depended on seasonal productions, being filled. In the digital video streaming segment too, a possible combination of ZEE5 and SonyLiv could challenge Disney+Hotstar for the third position in viewership share after Amazon Prime Video and Netflix.

While Sony India, which has emerged as a white knight for ZEEL promoters, would hold a majority 52.93 per cent stake in the combined company, ZEEL shareholders would hold the balance 47.07 per cent. Current ZEEL managing director & CEO Punit Goenka will continue in the position for another five years as Sony has agreed on his continuance in the top position. The combined company’s board of directors would include directors nominated by Sony Group, with the latter having the right to nominate the majority of board members. Under the terms of the agreement, Sony Pictures Entertainment, the parent company of SPNI, would invest growth capital so that SPNI has a cash balance of around $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.

ZEEL shares jumped 31.86 per cent to Rs 337.10 on the BSE after the merger announcement.

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 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 firms said.

“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,” the statement said.

Two independent directors of ZEEL, Ashok Kurien and Manish Chokhani, resigned from the board of the company last week ahead of the company’s AGM. Invesco and OFI Global — the largest shareholders of ZEEL — have proposed the appointment of six of its own nominees on the board of Zee. The proposed directors are: Surendra Singh Sirohi, Naina Krishna Murthy, Rohan Dhamija, Aruna Sharma, Srinivasa Rao Addepalli and Gaurav Mehta.

The exit of the directors and removal of the MD have come after proxy advisory firm Institutional Investors Advisory Services (IiAS) raised serious corporate governance concerns in the company by asking shareholders not to vote for re-appointing the two directors on the company’s board at the AGM.

“Zee promoters’ stake would stay at 4 per cent (same as current) if they agree for non-compete agreement, they have the option to increase stake up to 20 per cent over a period of time. Effectively, Punit finds a white knight to salvage himself from being forced to move out,” said Ashwin Patil, sr. research analyst (media), LKP Securities. “After the merger talks of Sony Entertainment with Viacom18 dropping, this consolidation will add synergies to the existing portfolio of both the entities, especially in the verticals of Sports and OTT,” said Vivek Menon, co-founder of NV Capital. Further ZEE would also have access to Sony’s international catalogue to exploit and monetise.

“The corporate governance overhang of ZEE Entertainment should also fade away with this merger and enhance investor confidence. The combined entity will be in a superior position to compete with Disney more effectively…,” Menon said.