Zee and Sony an indirect subsidiary of Sony will undergo a multiple stage merger process; details here

The Zee Entertainment Limited and Sony Pictures Networks India, an indirect subsidiary of Sony Pictures Entertainment Inc (SPE) will undergo a multiple stage merger process. This process includes several regulatory compliances and shareholders approvals. As per Punit Goenka, who is going to lead the merged entity estimated a time period of eight to ten months to fulfil these requirements.

As required in every merger/acquisition compliance with requirements of regulatory authorities like National Company Law Tribunal (NCLT), Competition Commission of India (CCI), SEBI, NSE, BSE and Ministry of Information and Broadcasting are crucial in this process.

Along with regulatory compliances, ZEEL has to get an approval of three-fourths majority of shareholders. Shareholders include individuals, institutional investors, foreign portfolio investors, and mutual funds. Getting approval of these is very important to complete the merger process.

Earlier, Invesco, one of the shareholders, had raised concerns regarding the possibility of increasing the promoter group’s stake to 20 percent in the proposed Zee-Sony merged entity. It demanded for an EGM. But ZEEL denied that demand. Both Invesco and ZEEL approached the Bombay High Court. The Bombay High Court has stayed Invesco’s demand for an EGM. However, Invesco has approached the Bombay High Court division bench against the order passed by the Bombay HC in respect of its requisition EGM. Now, everything will depend upon the order of the Bombay High Court division bench. These legal battles may slow down the merger process.

On the other hand, the shareholding ratio was announced. As per Board of Zee Entertainment Limited (ZEEL), Sony Pictures Networks India (SPNI), will hold 50.86 percent stake in the merged entity. And out of the rest of shares, the promoters of ZEEL will hold 3.99 percent, and the other ZEEL shareholders will hold a 45.15 percent stake in the merged entity. ZEEL shareholders will get 85 shares in SPNI for every 100 shares they held in ZEEL. SPNI will subdivide its shares and issue and allot bonus shares by way of bonus issue. It also to issue 26.5 Cr shares to existing shareholders for Rs.7,948 Cr through Rights Issue. As per agreement between SPNI and ZEEL, Sony has to invest $1.50 billion in the combined entity. Along with this, a subsidiary of Sony Pictures Entertainment Inc., would pay a non-compete fee of Rs 1,101.30 Cr to the promoters of ZEEL.

The combined entity would have a viewership of 26% in India. There would be 75 channels. There might be some possibilities of launch of new channels too. The combined entity is going to give significant competition to the Star-Disney duo. The combined entity’s OTT channels will include ZEE5 and Sony LIV.

Several brokerage houses have given mixed opinions regarding the merger effect on ZEEL. The stock has already been rallied a lot this year.

Raghuveer Jandhyala

Editor, Tax Concept. I have written on market, finance, management, and technology.

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