Zee Entertainment Enterprises hammered out a surprise merger deal with Sony Pictures Networks India in a bid to thwart an attempt by its largest investor Invesco to oust Punit Goenka as managing director of the company.
If the deal goes through it will create India’s second-largest entertainment network by revenue and spawn an entity with 75 television 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).
The deal will be the largest such transaction in the Indian media and entertainment space.
The Wednesday morning announcement saw shares of the Subhash Chandra-founded company spike as much as 40% before ending at ₹337.10, up 32%, on the BSE, for a market value of about ₹32,340 crore.
Under the terms of the non-binding agreement, SPN will infuse growth capital of $1.575 billion (₹11,615 crore) and end up with a 52.93% stake in the merged entity, while ZEE shareholders will own the remaining 47.07% Given that ZEE’s founders have just a 3.99% stake, the success of the deal hinges on shareholder backing. A three-fourth majority will be required to approve the merger, the ZEE management said in a conference call with analysts on Wednesday evening. The promoter stake will remain at about 4% after the merger, inclusive of a 2% stake that will be transferred from Sony in return for a non-compete clause. It will take six-eight months for the merger to conclude, they said.
The merger proposal proposes that Goenka stay as MD and CEO of the merged entity for at least five years after completion of the deal. The majority of the board will be nominated by Sony Group and NP Singh, MD and CEO of SPN, is likely to be on the board.
“I am pleased to announce that Sony Pictures Networks India has entered into an exclusive, nonbinding term sheet with Zee Entertainment Enterprises to combine both companies’ linear networks, digital assets, production operations, and programme libraries,” Ravi Ahuja, chairman of Global Television Studios and Sony Pictures Entertainment Corporate Development, wrote in an internal mail to employees.
“The board of directors at ZEE has conducted a strategic review of the merger proposal between SPN and ZEE,” ZEE chairman R Gopalan said in a company release. “We have unanimously provided in-principle approval to the proposal and have advised the management to initiate the due diligence process.”
The merged entity will remain a listed entity in India. The final terms will need to be arrived at over the next 90 days, after which they will sign a binding agreement and seek requisite regulatory, corporate and shareholder approvals.
“Sony Pictures Entertainment will have a majority stake in the combined company, and we expect that NP (Singh) will hold a leadership role on its board of directors,” Ahuja said in his note. “The combination… will create a combined content platform that can compete with domestic and global platforms and accelerate that region’s transition to digital.”
As per the last available financial details, the two put together have over ₹13,600 crore in revenue and an employee count of more than 4,200.