ZEE and Sony Merged Together, All You Need To Know

ZEE And Sony Merged, After three months of due diligence, Sony Pictures Networks India (SPN), a subsidiary of Sony Corp’s Sony Pictures Entertainment (SPE), has signed definitive agreements to merge with Zee Entertainment NSE -2.65 % Enterprises (ZEE)

Sony will hold majority stake in the merged company, ZEE promoter family to own 3.99% with an option to increase stake up to 20% from market.

The closing of the transaction is subject to certain customary closing conditions, including regulatory, shareholder, and third-party approvals.

If it goes through, the merger, which was initially announced on September 22 when the two companies signed a non-binding term sheet, will create India’s second-largest entertainment network by revenue and spawn an entity with 75 TV channels, two video streaming services (ZEE5 and Sony LIV), two film studios (Zee Studios and Sony Pictures Films India), a digital content studio (Studio NXT), and programming libraries.

Given that ZEE’s founders have just a 3.99% stake, the success of the deal hinges on shareholder backing as a three-fourths majority will be required to approve the merger.

Invesco, which owns 17.88% stake in ZEE, had requisitioned the board to conduct an extraordinary general meeting (EGM) of the shareholders to vote on the removal of MD and CEO Punit Goenka from the company’s board. ZEE board declined the request and got an injunction against the offshore investor from the Bombay high court. Invesco has challenged the order in front of a division bench and the case is being heard at present. Parallelly, the National Company Law Tribunal (NCLT) is also hearing on the application filed by Invesco.

Under the terms of the definitive agreements, SPN will have a cash balance of $1.5 billion (assuming an INR to USD ratio of 75:1) at closing, including through an infusion by the current shareholders of SPN and the promoters of ZEE.

This, the two companies said, will enable the merged company to drive sharper content creation across platforms, strengthen its footprint in the rapidly evolving digital ecosystem, bid for media rights in the fast-growing sports landscape and pursue other growth opportunities.

Under the transactions contemplated by a non-compete agreement, SPE will pay a non-compete fee to ZEE’s existing promoters, which will be used by the promoters to infuse primary equity capital into SPN, entitling them to acquire shares of SPN, which would eventually equal approximately 2.11% of the shares of the merged company on a post-closing basis.

After the closing, SPE will indirectly hold a majority of 50.86% of the merged company, while ZEE promoters will hold 3.99%. Existing shareholders will hold a 45.15% equity stake in the merged company.

Meanwhile, the two companies said that Goenka will lead the merged company as its MD and CEO, while the Sony Group will nominate a majority of the board of directors.

NP Singh, currently MD & CEO of SPN, will join the new board, post-merger. He will also assume a broader executive position at SPE as chairman of Sony Pictures India (a division of SPE) reporting to Ravi Ahuja, chairman of Global Television Studios at SPE.

“It is a significant milestone for all of us, as two leading media and entertainment companies join hands to drive the next era of entertainment filled with immense opportunities,” said Goenka. “The combined company will create a comprehensive entertainment business, enabling us to serve our consumers with wider content choices across platforms.”

Goenka added that he was grateful to the teams at ZEE, SPE, and SPN for their efforts that led to the signing of the agreements within the stipulated timelines.

“This merger presents a significant opportunity to jointly take the businesses to the next level and drive substantial growth in the global arena. I look forward to working with the guidance of the esteemed members of the combined company’s board to unlock the potential of this merger, and I wish NP Singh all the best in his new role at SPE,” he added.

As part of the definitive agreements, the ZEE promoters have agreed to limit the equity that they may own in the combined company to 20% of its outstanding shares.

This construct does not provide the promoters any pre-emptive or other rights to acquire equity in the merged company from the Sony Group, the merged company, or any other party.

Any shares purchased by the promoters of ZEE will have to follow all applicable laws, including any pricing guidelines.

“Today marks an important step in our efforts to bring together some of the strongest leadership teams, content creators, and film libraries in the media business to create extraordinary entertainment and value for Indian consumers,” said Ahuja. “I especially want to thank NP Singh, who presented us with the idea of exploring this merger well over a year ago. NP has done extraordinary work building SPN into what it is today, and we look forward to continuing our work with him in his new role aft er closing.

Singh added, “This merger will create a company that’s best in class and will redefine the contours of the media and entertainment industry. As a representative of SPE on the board of the new merged company, it will be my endeavour to provide strategic guidance and support to the company’s operating team in achieving our vision. I am also excited about the opportunity of being appointed chairman, Sony Pictures India, to oversee SPE’s investments and craft a wider footprint for Sony in India.”

SPE was advised on this transaction by Morgan Stanley, KPMG Corporate Finance, and Shardul Amarchand Mangaldas, while ZEE was advised by KPMG, JP Morgan, Trilegal, and Boston Consulting Group.

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