Zee-Sony Merger: Deal Sealed, Punit Goenka CEO Of New Entity

Zee Entertainment Enterprises Ltd. finalised the terms of the merger with Sony Pictures Networks India Pvt. amid a dispute with an investor seeking to oust the existing management.

Sony Pictures Networks will own a 50.86% stake in the merged entity, while Essel Holdings Ltd. will own 3.99%, according to an exchange filing. Public shareholders will own 45.15% as part of the merger agreement.

Punit Goenka will lead the combined company as its managing director and chief executive officer.

The deal was announced in September when Goenka and Zee Entertainment were facing a vote of no-confidence from one of its longest standing institutional shareholders: Invesco Developing Markets Fund. With 17.88% stake in the company, two Invesco funds sought the removal of Goenka and also to appoint six new independent directors on the board of Zee Entertainment citing governance concerns.

According to the scheme of arrangement approved by the board, Zee Entertainment will be merged into Sony Pictures Networks, and shareholders of Zee will get shares of Sony Pictures.

• Zee shareholders will get 85 shares in Sony Pictures Networks for every 100 shares they held in Zee Entertainment. Zee shareholders, including promoters, will get 81.65 crore shares of Re 1 face value against total outstanding 96.05 crore shares of Re 1 face value held by them in the listed company.

• Sony Pictures Networks will subdivide its shares and issue and allot bonus shares by way of bonus issue. This will enhance the capital of Sony.

• It will further issue 26.5 crore fresh shares against a fund infusion of Rs 7,948.69 crore by way of rights issue.

• SPE Mauritius Investments will pay non-compete fees of Rs 1,101.30 crore to Essel Holdings, a Zee promoter entity.

• Essel Holdings will use the non-compete fees to infuse into Sony Pictures Network so as to hold a 2.11% stake in the merged entity.

• Subsequent to merger through the National Company Law Tribunal, Sony Pictures Networks will hold a 50.86% stake, the Essel Group will hold 3.99% and Zee shareholders will hold 45.15% stake in the merged entity.

• As part of the definitive agreements, Zee promoters have agreed to limit the equity that they may own in the combined company to 20% of its outstanding shares.

• This construct does not provide the Zee founder any pre-emptive or other rights to acquire equity of the combined company from the Sony Group, the combined company or any other party. Any shares purchased by the Zee founders will be in compliance with all applicable laws, including any pricing guidelines.

• The majority of the board of directors of the combined company will be nominated by the Sony Group and will include the current Networks Managing Director and CEO, NP Singh. On closing, Singh will assume a broader executive position as chairman, Sony Pictures India (a division of Sony Pictures Entertainment) reporting to Ravi Ahuja, SPE’s chairman of global television studios and SPE corporate development.

The two entertainment firms had agreed to combine their linear networks, digital assets, production operations and programme libraries on Sept. 22. The 90-day exclusive negotiation period ended on Dec. 21.

Sony Pictures was advised on the transaction by Morgan Stanley, KPMG Corporate Finance, and Shardul Amarchand Mangaldas & Co. Zee Entertainment was advised by KPMG, JPMorgan, Trilegal and Boston Consulting Group.