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Telly monolith in the making: Sony to have majority stakes in ZEEL merger
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SME Times News Bureau | 22 Sep, 2021
Financially troubled Zee Entertainment Enterprises will merge with Sony
Pictures Networks India (SPNI) in what will create country's largest
entertain and media entity with presence across platforms.
The
board of ZEEL has provided an in-principle approval for the merger that
would also see SPNI infusing growth capital of about $1.575 billion into
the new merged entity for use in pursuing other growth opportunities
"The
Board has evaluated not only on financial parameters, but also on the
strategic value which the partner brings to the table. The Board
concluded that the merger will be in the best interest of all the
shareholders & stakeholders," ZEEL said in a regulatory filing.
"The
merger is in line with ZEEL's strategy of achieving higher growth and
profitability as a leading Media & Entertainment Company across
South Asia.
The merger would not have come at more opportune time
for both the entities that were scurrying for newer initiatives stay
relevant in the highly competitive market with wide scale transformation
in Indian television landscape with increasing penetration of
broadband services and regular launches of streaming video services.
SPNI
had been present in india since 1995. But the network has not had a
smooth run to either monetise its operations or expand it further from
the present 26 TV channels, a film production and distribution unit and
the widely-viewed streaming platform SonyLIV.
ZEEL on the other
hand had been fighting worsening financial conditions with debt shooting
off to over $ 2.4 on the back of a rapid and at time of unplanned
expansion. The entity operates 66 linear television channels across 171
countries and is attempting to build the reach of its streaming
platform, Zee5, around the world.
In 2019, Essel (parent of Zee)
brought in financial advisers Goldman Sachs to see whether the owners
could sell their stake in ZEEL. Sony and Essel held talks on a possible
merger or buyout of operations in 2019 as well but the talks could not
reach any degree of finality. Essel is also understood to have held
talks with James Murdoch's Lupa Systems and Comcast, but it resisted
selling the stake to a business rival. In 2019, agreement was reached
to sell 16.5 per cent stake in ZEEL to US investment group Invesco
Oppenheimer Developing Markets Fund that is currently running a battle
with existing ZEEL management and has called for a EGM to remove them
over violation of corporate governance norms.
The merger will
try to correct some of these anomalies that would also see rejig of few
channels while further sharpening the entities streaming services.
According to the filing made on bourses, shareholders of SPNI, will hold a majority stake in the merged entity.
"The
shareholders of SPNI will also infuse growth capital into SPNI as part
of the merger such that SPNI has approximately $1.575 billion at
closing, for use in pursuing other growth opportunities."
"Based
on the existing estimated equity values of ZEEL and SPNI, the indicative
merger ratio would have been 61.25 per cent in favour of ZEEL. However,
with the proposed infusion of growth capital into SPNI, the resultant
merger ratio is expected to result in 47.07 per cent of the merged
entity to be held by ZEEL shareholders and the balance 52.93 per cent of
the merged entity to be held by SPNI shareholders."
Furthermore,
ZEEL and SPNI have entered into a non-binding term sheet to combine
both companies' linear networks, digital assets, production operations
and program libraries.
The term sheet provides an exclusive
period of 90 days during which ZEEL and SPNI will conduct mutual
diligence and finalize a definitive agreement.
In addition, the filing said that the merged entity will be a publicly listed company in India.
The
move to merge ZEE also comes at a time when the entity is engaged in a
boardroom brawl with the company's two largest shareholders expressing
non confidence with existing management and seeking an extraordinary
general meeting to sack a few directors, including ZEEL's managing
director and CEO Punit Goenka. It needs to be seen whether existing ZEEL
shareholders block the merger plan.
Interestingly, under the terms of the merger Goenka is expected to be MD and CEO of the new entity.
The development comes as massive changes are taking place in the sector.
Additionally,
not only will the development led to the creation of one of the biggest
entertainment and media companies in India but will fulfil individual
deficiencies that the two companies separately suffered.
"Sony is
strong in the Hindi GEC segment (especially in non-fiction space) where
Zee is weak. Zee is strong in movies (across genres) and regional GEC
space," said Ashwin Patil, Sr. Research Analyst (media) at LKP
Securities.
"Zee has 18 per cent network viewership share and
Sony should be 10-12 per cent in our view. Additionally Sony is strong
in 'Sports' as well. Thus it would be a good strategic fit from
broadcast, digital and content perspective."
In addition, Santosh Meena, Head of Research, Swastika Investmart said:
"The
recent announcement of a deal with Sony will be a very positive trigger
for Zee ltd as it will have a quality promotor and that will ease the
issue of corporate governance in the company."
"Though the deal
is a nonbinding agreement so it will take some time for more clarity but
this deal will bring a good synergy for both the company to grow their
businesses and the combined entity will become the largest player in
the industry."
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