Sony and Zee ink merger deal, set to form second largest entertainment network

Synopsis

If the deal goes through it 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) and a digital content studio (Studio NXT).

Zee Entertainment Enterprises

NSE -4.07 % (ZEE) hammered out a surprise merger deal with Sony Pictures
Networks (SPN) India, apparently fending off a bid by its largest investor
Invesco to oust Punit Goenka as managing director of the company.

Main:
Zee Entertainment Enterprises (ZEEL) has found a white knight in
rival Sony with the latter agreeing to merge its India entertainment business
with the beleaguered firm, thus creating India’s largest entertainment network
with about $2 billion in revenues and 26 per cent viewership share.

According to the indicative initial merger ratio, ZEEL shareholders will own
approximately 47 per cent in the merged entity, while the promoters of Sony India will
hold 53 per cent after the infusion of growth capital, it said in a statement. On the basis
of the existing estimated equity values of ZEEL and Sony India, the indicative merger
ratio would have been 61.25 per cent in favour of ZEEL. However, with the proposed
infusion of growth capital, Zee’s stake is pegged at 47 per cent, it added.While the
promoters of Sony will have the right to appoint the majority of directors to the board,
Punit Goenka, chief executive officer and managing director of ZEEL, will become the
CEO and MD of the combined entity. Goenka’s appointment, however, will be subject to
the necessary approvals from the nomination remuneration committee, the board, and
shareholders of the merged company, the firm said.
Problem:
Invesco, ZEE Entertainment's largest shareholder, is not in a mood to back off from its
demand for an extraordinary general meeting (EGM) for a recast of the board, including
the ouster of MD & CEO Puneet Goenka.

ZEE last week said Goenka's appointment is an 'integral part' of the merger deal with Sony
Pictures.

Analysts tracking the developments said it seems Invesco, which holds about
18 per cent stake in ZEE, is not averse to the merger deal, but wants the
governance issues to be addressed first before ZEE shareholders, under a
new board, can consider
Invesco does not look opposed to the idea of Sony taking a majority stake, but what it would like
is the sequencing of the events.

Invesco wants appointment of six additional independent directors in a "free and democratic
manner." It had earlier sought the removal of three non-independent directors, following which
two non-independent directors Ashok Kurien and Manish Chokhani have stepped down.