Zee Entertainment board clears media firm’s mega merger with Sony

The board of Zee Entertainment Enterprises (ZEEL) on Tuesday cleared one of India’s largest media deals. Early on Wednesday morning, Zee announced that it had signed a definitive agreement to merge with Sony Pictures Networks India (SPNI). The combined entity, with a revenue of roughly Rs 14,000 crore, is India’s second-largest media firm.

SPNI is an indirect subsidiary of Sony Pictures Entertainment Inc, the California-based arm of the $82.5-billion Sony Corp. After the merger, it will indirectly hold a majority 50.86 per cent stake in the combined company. The promoters of ZEEL (Subhash Chandra and his family) will hold 3.99 per cent and other ZEEL shareholders will hold 45.15 per cent. Its current CEO and managing director, Punit Goenka, will lead the combined company. The majority of the board of directors of the merged company will be nominated by Sony. This will include N P Singh, the current SPNI managing director and chief executive. As chairman of Sony Pictures India, he will report to Ravi Ahuja, the man who stitched this deal together. Ahuja is Sony Pictures Entertainment’s chairman of global television studios and corporate development. “Of the many compelling businesses in India, media is one. It is a high-growth one and fits well,” said Ahuja.

“We have built a successful business in India and were looking at the next step for Sony’s growth. When Punit and I discussed this deal, we realised there were a lot of complementary strands. So I took it to Tony and Ravi (a year back) and they were pleased with the idea,” said N P Singh. This is Sony’s second attempt at an acquisition. It was in advanced talks with Viacom18 before the deal fell through in late 2020.

But much drama ensued before the ZEEL deal came through.

Early this year, Invesco, one of the largest minority shareholders in Zee (with an 18 per cent stake), raised objections about corporate governance. On September 11, it asked Zee to call an extraordinary general meeting. On September 22, Zee announced the plan to merge with Sony. While the deal was already in the making, the term sheet was hurried through to thwart Invesco and swing public opinion in Zee’s favour. It did. The Zee stock jumped from Rs 281 to over Rs 350 within hours of the deal being announced. When Zee rejected the demand for an EGM, Invesco moved court. Zee returned the favour and claimed that Invesco was fronting for another acquirer (reportedly Reliance).

The anatomy of a deal

This drama between Zee and Invesco clearly did not put off Sony. The 90-day period for due diligence and negotiation culminated in the final announcement of the merger. Invesco has since come around, according to reports. Its big bugbear, the plan to allow the promoter family to increase its shareholding from the pre-merger 3.99 per cent up to 20 per cent within the ‘parameter of existing laws’ has been sorted. “This will not be a preferential allotment but from the open market,” emphasised Ahuja.

Sony Pictures Entertainment will pay a non-compete fee to the promoters of ZEEL, which will be used to infuse primary equity capital into SPNI. This will give the promoters approximately 2.11 per cent of the shares of the combined company on a post-closing basis. This enables Chandra and his family to come back to their pre-merger holding of 3.99 per cent. Sony will also put in $1.57 billion (about Rs 12,000 crore) as investment into the new company. Much of this is expected to go to content (IPL rights, originals, films) and technology.

Ever since founder Subhash Chandra and his family lost control of Zee in 2019, there had been speculations that it would be acquired by a strategic investor. All sorts of names — Sony, Comcast, Reliance (which owns Viacom18) — were thrown around. “From a TV market and content perspective, the new entity will have significant scale, great operating leverage and is more than the sum of its parts,” said Vivek Couto, executive director of Singapore-based consulting firm Media Partners Asia (MPA) when the deal was announced in September.

With 49 channels in India, Zee has a hold over a fifth of TV viewership in India. Going by the Broadcast Audience Research Council data for 2020, the combined entity will have a 28 per cent share of Indian TV viewership, putting it firmly ahead of leader Disney Star. Unlike Sony, Zee has a strong presence across Hindi, Marathi, Tamil, Telugu, and other Indian languages, and also has a global footprint (170 countries, 35 channels). But it lacks sports and kids programming that Sony and its 27 channels have, along with a strong urban connect. Both of them have a strong film business and OTT platforms that are coming into their own. SonyLiv had a breakthrough in 2020 with Scam 1992.

Much of the detailing on which brands will stay, how much staff will be retained and who will head which business hasn’t yet been worked out. It will begin once regulatory clerances, primarily from the Competition Commission of India, come in, said Goenka.

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