Thursday Brief

SONY- ZEE Merger

The board of directors of  Zee Entertainment Enterprises Ltd (ZEEL)  has given in-principle approval to the company’s merger with Sony Pictures Networks India (SPNI) in what could create a media combine that straddles across platforms such as cable television, digital video streaming, production operations, and music and video libraries. In nutshell deal is as follows :

• The shareholders of Sony Pictures will hold a majority stake in the merged entity.
• Zee Entertainment is to hold 47.07% and the balance 52.93% stake to be held by shareholders of Sony India.
• The majority of the board of directors of the merged entity will be nominated by the Sony group.
• As part of the transaction, Punit Goenka will continue to be the Managing Director and CEO of the merged firm.
• Zee Ent, Sony India has agreed to a non-binding term sheet.
• The term sheet provides exclusivity for 90 days during which the two parties will conduct mutual diligence and finalise definite agreement(s)
• The merged entity will be a publicly listed company in India.
• According to the term sheet, the promoter family is free to increase its shareholding from the current (-) 4% to up to 20%.
• The shareholders of Sony will infuse growth capital into SPNI as part of the merger such that SPNI has the approx US $ 1.575 billion at closing, for use in pursuing the other growth opportunities.
• The final transaction would be subject to completion of customary due diligence and execution of definitive agreements and required corporate, regulatory, and third-party approvals, including the votes of Zee’s shareholders.

Zee, which has a presence in television broadcasting and digital media with brands such as Zee TV, has been under pressure from top investors for management reshuffle, including the exit of CEO, Punit Goenka, from the board.

How does ZEEL benefit from the deal?

While ZEEL has a larger network viewership share than Sony, it derives most of its strength from regional general entertainment channels (GEC) and movies, whereas Sony has a stronger foothold on Hindi GEC and sports segments.

In fact, in 2018, Zee Entertainment had sold its sports portfolio under the Ten Sports brand to Sony Pictures Networks India, along with a non-compete agreement that prevented Zee from entering the sports segment. In addition to this, experts suggest that such a deal could help ZEEL quell some of the concerns recently raised by large shareholders pertaining to corporate governance issues with an international company like Sony getting on board.

What is in it for Sony?

SPNI had been on the lookout for a local partner in India to challenge the Disney-Star collaboration that has been leading the content market. The company had also been in discussions with Reliance-owned Viacom for a potential merger but the talks were called off sometime last year after the companies couldn’t agree on points such as valuation and other merger clauses.

With the ZEEL partnership, SPNI could also see some of the gaps being filled, particularly in its bouquet of entertainment channels, which have largely depended on seasonal productions such as Kaun Banega Crorepati for its success. ZEEL is present across broadcasting, movies, music, digital, live entertainment, and theatre businesses, both within India and overseas, with more than 260,000 hours of television content and houses the world’s largest Hindi film library with rights to more than 4,800 movie titles across various languages, while SPNI reaches out to over 700 million viewers in India and is available in 167 countries.

What happens to the OTT market?

The present market share in this segment is- Netflix and Amazon Prime at 20% each followed by Disnet+Hotstar at 17%, ZEE5 at 9%, and SonyLIV & ALT Balaji at 4 % each. The details on the OTT merger are still not available, including whether ZEE5 and SonyLIV will become one brand or operate separately, the combined market share of these platforms could possibly running for third place in the Indian OTT market.

Does the deal also impact Zee groups other corporate entities?

No, the Zee Group’s news media and education businesses are held under different corporate entities – Zee Media Corporation Ltd and Zee Learn Ltd, respectively. Both of these are listed companies and are not included in ZEEL’s deal with Sony.

The merger announcement has come close on the heels of ZEEL’s largest shareholders Invesco Oppenheimer Developing Markets Fund and OFI Global China Fund LLC seeking Goenka’s removal from the company’s board, in addition to proxy advisory firms InGovern and Investor Advisory services raising concerns around corporate misgovernance favouring the promoter family.

“Further, certain non-compete arrangements will be agreed upon between the promoters of ZEEL and the promoters of SPNI.

One thing is certain the TV broadcasting and viewing is going in for a drastic change, we have to wait and watch for the changes.

Waiting for your views on this blog.

Anil Malik

Mumbai, India

23^rd September 2021