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Zee-Sony merger: ZEEL promoters to get 2% additional stake in merged entity for non-compete clause

New Delhi: The merger of Zee Entertainment Enterprises with Sony Pictures Network India (SPNI) will see the former’s promoters get an additional 2 per cent stake as part of a non-compete agreement, while the appointment of Punit Goenka as MD and CEO of the merged entity was an “integral” part of the deal, Zee investors were informed on Wednesday. Speaking at an investors call, Zee Entertainment () MD and CEO Goenka said the companies were engaged in discussions for several months.

As of June 2021, the promoters’ shareholding was 3.99 per cent in ZEEL and after the proposed merger, it will be diluted to 2 per cent in the merged entity.

However, SPNI, which will get 52.93 per cent stake in the combined entity post-merger, will transfer 2 per cent holding to ZEEL’s promoters.

“The stake transfer is roughly around 2 per cent as envisaged in the transaction. Sony will remain a majority shareholder of this company (merged entity) with more than 50 per cent,” Goenka told investors.

The transfer of 2 per cent to the promoters is in lieu of them not entering into conflicting business.

Replying to a question about Goenka’s appointment as the head of the merged entity, a ZEEL official said this was an “integral” part of the deal, though SPIN would have a majority on the board.

In recent days, ZEEL has seen its top investors seek a management reshuffle, including the Goenka’s exit.

Invesco Developing Markets Fund and OFI Global China Fund LLC, which together hold about a 17.9 per cent stake in Zee, had sought an extraordinary general meeting of shareholders last week to oust Goenka along with two board members.

“I will continue to serve the merged entity as the Managing Director and CEO with the necessary approval,” Goenka said. “The conditions for my appointment for the leadership is the same as what has already been approved by the shareholders of Zee. There is no charge for that.”

“Any change in the remuneration would be subject to board approval and shareholders approval and whatever necessary requirements are there,” Goenka said.

Asked if ZEEL shareholders vote against Goenka continuing as MD and CEO and what impact it will have on his leading the merged entity, the company official replied, “That is absolutely a separate matter and has nothing to do with the deal.”

“The deal will carry and take its own course in the framework of the relevant regulatory requirements and we would follow that process,” he said.

Earlier on Wednesday, ZEEL and SPNI announced their merger, which will create the country’s largest media company.

The merged entity, in which SPNI’s parent company Sony Pictures Entertainment would infuse $1.575 billion, will be a publicly listed company in India.

Goenka expects the deal to pass through with all mandatory regulatory clearances, including from stock exchanges, NCLT and fair trade regulator CCI, though he did not share any timeline for that.

The deal would also go through due diligence and independent valuation exercises within the next 90 days, as per the term sheet.

“The current proposal is a culmination of several months of discussion, which has now led to the definitely steps being undertaken on both sides, including the process and the necessary documentation,” said Goenka.

The deal will create the largest media and entertainment company in India, across languages, he said.

“Zee and Sony will together form the largest media and entertainment player in India and become a market leader, commanding over 1/4 of the market share…,” he said.

On Sony Pictures Entertainment’s $1.6 billion infusion, Goenka said, “It will enable the merged entity to accelerate its digital platform growth and significantly invest in premium content including sports.”

Replying to a question on promoter Subhash Chandra family’s share in the merged entity, he said it can “potentially” go up to 20 per cent from 4 per cent.

“It is not conditional upon anything. And again, it would be subject to necessary approvals…,” he added.

Regarding cost synergies after the merger, he said it would not be possible to comment at present but generally in the global markets where this kind of merger has happened, synergies were in the range of 6 to 10 per cent on the revenue side.

ZEEL has a presence in the OTT space with Zee5, while SPNI owns SonyLIV.

Asked whether Zee5 and SonyLIV would continue to operate separately or will be merged in one app, Goenka replied, “All these decisions would be taken by the new board after the companies are successfully merged.”

Zee group had five years back sold its sports broadcast business Ten Sports but has now will come back to the segment with the merged entity.

“I believe a lot has changed since the time we have sold the sports business. The digital landscape has changed the ecosystem completely for monetisation of sports and this represents a good opportunity for the combined entity to really re-enter the space in a far more gusto manner to enable growth for the entire sector,” he added.

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