Merger of Zee and Sony Pictures Gets Shareholder Approval

It was a victory of sorts for the Subhash Chandra (Essel) family. When the deal between Sony Pictures and Zee Entertainment was finally approved by the shareholders, there were two things that worked in favour of the promoter group.

Subhash Chandra’s son Punit Goenka will continue as the CEO of the merged entity. But, more importantly, the Subhash Chandra family gets an additional 2% stake in the merged entity as non-compete fee taking their stake in the post-merger entity to 4%.

As per the terms of the merger, the existing shareholders of Zee Entertainment will get 85 shares in Sony Pictures Network for every 100 shares held by them. In addition, the Subhash Chandra family will get a non-compete fee of Rs.1,101.30 crore from Sony Pictures.

This will be automatically converted into equivalent stake in the merged entity This will take the share of Essel family in Sony Pictures Network up to 4%, despite a much larger equity base. That was the issue that Invesco had an objection to as it was worried about its stake relative to Chandra family getting diluted in the post-merger entity.

As originally announced, an additional 26.5 crore fresh shares will be issued in exchanges for Sony Pictures infusing fresh funds to the tune of Rs.7,949 crore into the merged entity to bankroll its future plans. 
Post the completion of the merger formalities, Sony Pictures Network will hold 50.86% in the merged entity, Essel family will hold 3.99% while the other shareholders of Zee will hold 45.15% in the merged entity.

Consequently, the share of the largest holder, Invesco, will also get proportionately diluted from 17.88% to 8.07%in the merged entity. This would substantially reduce the relative ownership gap between the Essel family and Invesco, one of the major contentious issues.

The merger of Zee Entertainment and Sony Pictures will create the largest diversified television network in India straddling news, current affairs, sports and regional and Hindi entertainment.

In addition, Zee Entertainment and Sony Pictures will also combine their linear networks, digital assets and also their production operations as well as their vast libraries of programs. It will give the entity much higher bargaining power in media buying.

The big battle for control had erupted when Invesco with its 17.88% holdings had decided to vote out Punit Goenka from the top job and replace the board with 6 of its own nominees. However, with the Sony merger going through, that controversy has been laid to rest.

As part of the deal, the Essel family will be subject to upper ownership limits of maximum 20% in the merged entity. However, Zee will not have any special pre-emptive rights to this stake but will have to go through the regular SEBI-approved process.

(Note: Subhash Chandra family and Essel family have been used interchangeably)

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Invesco Objects to the Merger of Zee and Sony Pictures