The combined business is expected to establish a media behemoth with a 27% market share.
The merger of Zee Entertainment Enterprises and Sony Pictures Networks India Pvt Ltd is expected to be announced within the next day or two, after approval by the board of directors of the Punit Goenka-led firm. The 90-day exclusivity period expired on Tuesday, and the corporations have made no public declaration regarding whether it would be extended further.
Sony would own 50.8 percent of the amalgamated business under the terms of the deal, while domestic shareholders will own more than 47%. The Zee promoter family will initially own a 2.2 percent share, which will be increased to 3.99 percent. Additionally, there will be a provision allowing the promoter family to expand its shareholding in the combined firm to up to 20% subject to certain requirements, including the purchase of shares at market value.
The merged firm is expected to have a market share of 27% (Sony has 9% and Zee has 18%), the highest in the industry, followed by Star with 24%. The combined firm will have a viewing share of 13-15 percent in the over-the-top (OTT) market.
The Invesco conundrum
The agreement also averts a lawsuit by US-based investment company Invesco, which is also Zee’s largest stakeholder, and has been pursuing the ouster of ZEE founder and CEO Punit Goenka since September.
The merger is an attempt by the promoter family to maintain control in the face of growing shareholder discontent, proxy advisory firms’ allegations of corporate mismanagement by the promoter and certain directors, and Invesco’s allegations of corporate mismanagement by the promoter and certain directors.
Even after the transaction was announced, Invesco pursued Goenka’s ouster from the company’s board of directors. The dispute is currently before the Bombay High Court on appeal following the court’s refusal to allow Invesco to call an EGM to remove Goenka earlier this year.
“ZEE’s merger with Sony… meets the majority of its stakeholders’ concerns. Sony will serve as the primary promoter, and the board of directors will be strengthened in terms of corporate governance and performance,” Edelweiss stated in a study. This is because Sony will retain the bulk of director appointments.
According to Edelweiss, the combination might result in massive synergies in content and over-the-top (OTT) services.
Elara Capital predicts that the amalgamated entity’s TV business would be valued at 81,400 crore, while the consolidated digital business will be valued at 9,100 crore.
‘Too large to replace’
“Sony-ZEE jointly control 22% of the advertising income market. ZEE-Sony may become unreplaceable in the medium to long term due to their sheer size (45% ad market share) and growth in the medium to long term,” said Karan Tuarani of Elara Capital.
The stage is now set for Zee shareholders to vote on the merger.
J N Gupta, Managing Director, Stakeholders Empowerment Services, stated that Invesco should support the transaction to ensure shareholder approval.