The board of Zee Entertainment Enterprises Ltd. has approved a proposal to merge with Sony Pictures Networks India Pvt., days after investors called for a leadership change at India’s largest publicly traded television network over governance concerns.
ZEEL and Sony India have entered into a non-binding term sheet to combine both companies' linear networks, digital assets, production operations and program libraries. The term sheet provides an exclusive period of 90 days during which ZEEL and Sony India will conduct mutual diligence and finalise definitive agreement(s). The merged entity will be a publicly listed company in India.Zee Entertainment Statement
The transaction provides a non-compete fee to the promoter of Zee Entertainment—Subhash Chandra and his Essel Group. Goenka is Chandra's son.
Sony India's promoters will transfer shares of the merged company to Essel Group to maintain its shareholding at 3.99%.
Currently, Essel Group owns exactly as much in Zee Entertainment. The rest is held by public shareholders, led by foreign portfolio investors (57.46%), insurance companies (10%) and mutual funds (8.10%).
According to the company's media statement, the term sheet provides that the promoter family is free to increase its shareholding up to 20%.
A merger with Sony India will require shareholder approval.
Also Read: Zee-Sony Deal: The Non-Compete Fee Twist
Merger Plan Vs Institutional Activism
The deal with Sony has been struck even as Zee Entertainment faces a vote of no-confidence from one of its longest standing institutional shareholders: Invesco.
On Sept. 11, two of its funds, Invesco Developing Markets Fund and OFI Global China Fund, that together own 17.88% of Zee Entertainment, requisitioned an extraordinary general meeting of shareholders to vote for removal of Goenka, managing director and chief executive of the company. They also sought to remove independent directors Manish Chokhani and Ashok Kurien as directors.
A day later, Kurien and Chokhani resigned with immediate effect, citing personal reasons.
Subsequently, at the company's annual general meeting on Sept. 14, Goenka made no mention of stepping down despite the shareholder pressure.
Invesco and OFI have also sought to appoint six new independent directors on the board of Zee Entertainment.
On receiving a valid requisition, the company, as per law, has to hold an EGM within 45 days, failing which the meeting may be called by the shareholders (requisitionists) themselves within three months.
In the midst of this investor action, billionaire investor Rakesh Jhunjhunwala and BofA Securities Europe SA bought shares of Zee Entertainment, contributing to a record surge in its share price.
Even as Zee Entertainment's public shareholders assess governance issues at the company, they may soon have to decide whether business advantages of a Zee-Sony merger outweigh the optics of the deal and how it re-cements Goenka and his father's position in the company.
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