If the deal goes through, it will create India’s second-largest entertainment network in terms of revenue and spawn an entity with 75 TV channels, two video streaming services (ZEE5 and Sony LIV), two movie studios (Zee Studios and Sony Pictures Films India) and a digital content studio (Studio NXT).
The deal will be the largest such deal in the Indian media and entertainment space.
Wednesday morning’s announcement saw shares of the company founded by Subhash Chandra soar to 40% before closing at? 337.10, up 32%, on BSE, for a market value of ‘approximately 32,340 crores.
Under the non-binding agreement, SPN will inject growth capital of $ 1.575 billion (Rs 11,615 crore) and end up with a 52.93% stake in the merged entity, while the shareholders of ZEE will hold the remaining 47.07%.
Zee-Sony Pictures Networks India merger: Big Bang entertainment deal details explained
Sony has signed a non-binding merger agreement with Zee Entertainment. ET’s Gaurav Laghate takes you through the outlines of the deal, which will create an entertainment freak with 75 channels and how company promoter Subhash Chandra has once again proven himself to be a master of the art of make a deal when the chips are low. To concern
Since the founders of ZEE only hold 3.99% of the capital, the success of the operation depends on the support of the shareholders. A three-quarters majority will be required to approve the merger, ZEE management said in a conference call with analysts Wednesday evening. The promoter’s stake will remain at around 4% after the merger, including a 2% stake which will be transferred from Sony in return for a non-compete clause. It will take six to eight months for the merger to go through, they said.
The merger proposal proposes that Goenka remain the managing director and CEO of the merged entity for at least five years after the transaction closes. The majority of the board members will be appointed by Sony Group and NP Singh, managing director and CEO of SPN, will likely sit on the board.
“I am pleased to announce that Sony Pictures Networks India (SPNI) has entered into an exclusive, non-binding list of conditions with Zee Entertainment Enterprises Ltd (ZEEL) to combine linear networks, digital assets, production operations and libraries programs from both companies. “wrote Ravi Ahuja, president of Global Television Studios and Sony Pictures Entertainment Corporate Development, in an internal letter to employees ET has seen.
“ZEE’s board has conducted a strategic review of the proposed merger between SPN and ZEE,” ZEE Chairman R Gopalan said in a company statement. “We unanimously gave approval in principle to the proposal and advised management to initiate the due diligence process.”
The merged entity will remain a listed entity in India. Final terms will need to be agreed within the next 90 days, after which they will sign a binding agreement and seek regulatory, corporate and shareholder approvals.
“SPE (Sony Pictures Entertainment) will own a controlling stake in the combined company, and we expect NP (Singh) to take a leadership role on its board of directors,” Ahuja said in his memo. . “The combination… will create a combined content platform that can compete with national and global platforms and accelerate this region’s transition to digital. ”
According to the latest financial details available, the two together have over Rs 13,600 crore in revenue and an employee count of over 4,200.
The promoters of the two companies will also sign certain non-compete agreements as part of the transaction.
According to the term sheet, the ZEE family of promoters are free to increase their stake from the current 3.99% to 20%.
Invesco, which owns 17.88% of ZEE, did not say why it had asked for the resignation of two directors as well as that of Goenka. As both directors resigned, despite being reappointed at the Annual General Meeting (AGM) on September 14, shares of ZEE climbed nearly 40%, suggesting that the market welcomed the decision to ‘Invesco. The pendulum swung the other way a week later, as the stock rose by a similar degree when the merger was announced. Invesco did not respond to questions.
Besides keeping Goenka, pundits were also surprised that the founders were allowed to increase their stake up to 20%.
“This is just the start and certainly not a done deal,” said Pritha Jha, Partner, Pioneer Legal. “There is a 90 day window for them to complete due diligence and negotiations, after which a whole range of approvals will be required.”
The deal will have to pass the Indian Competition Commission (ICC) test.
“The merged entity will be a giant when completed with a combined 25-30% market share, which is significant,” Jha said. “However, getting the go-ahead from the ICC should be procedural, as a 30% market share should not be considered a monopoly. Star & Disney India also has a similar market share. There is enough and more than competetion.” Star & Disney India is # 1 while Viacom18, controlled by Reliance Industries, would be ranked third if the merger deal goes through.
This is SPN’s second attempt to strike a deal with ZEE. ET first reported in January 2019 that SPN was one of the few shortlisted strategic investors that ZEE was in talks with to get rid of promoter participation in order to inject funds for growth.
ZEE was unable to strike a deal with a strategic investor in 2019 and the liquidity crisis forced it to settle for a financial deal. And although most of the developers’ debt has been paid, the business still needed growth capital, ”said an investment banker with first-hand knowledge of the matter. ZEE was evaluating several options during the foreclosure to raise funds, including debt as it is a debt-free company. However, the board of directors and the promoters were of the opinion that a strategic investor would be the first preference. ”
After the agreement with ZEE failed due to valuation differences, SPN attempted to merge with Viacom18, according to people with knowledge of the matter. In October last year, that deal was canceled and SPN’s parent company started looking for partners again, they said.
The ZEE-Sony merger deal has reportedly been in the works for some time.