Indian tribunal confirms Zee Entertainment-Sony merger, paves way for big media giant

India’s company law tribunal approved a merger between Zee Entertainment Enterprises Ltd and Sony Group Corp.’s South Asian unit on Thursday (August 10), paving the way for the creation of a media giant.

The merger is aimed at creating a $10 billion Indian media giant which was given necessary regulatory approvals from the stock exchanges of the country, along with the antitrust regulator last year. However, the proposed merger faced legal challenges from creditors in front of the National Company Law Tribunal (NCLT), where the companies sought their last approvals.

After the announcement, shares of Zee Entertainment Enterprises Limited (ZEEL) increased by 15 per cent on Thursday. The shares of Zee were trading at 14.32 per cent at Rs 276.95 at around 3:22 pm before markets closed.

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Partner at ASR & Associates Anuj Tiwari said that the NCLT in its order dismissed objections to the scheme, paving the way for a merger which will benefit all stakeholders.

Zee Entertainment Managing Director and CEO Punit Goenka said the merger will go ahead regardless of his position in the resultant entity. As per the agreement, ZEEL's CEO will serve as the MD and CEO of the combined company for five years.

Sony Pictures Networks India Private Limited (SPNI) and Zee Entertainment Enterprises Ltd. (ZEEL) had earlier announced that they have signed definitive agreements to merge ZEEL with and into SPNI and combine their linear networks, digital assets, production operations and programme libraries.

The agreements had followed the conclusion of an exclusive negotiation period during which ZEEL and SPNI conducted mutual due diligence.

Under the terms of the definitive agreements, SPNI will have cash balance of USD $1.5 billion (assuming an Indian rupee- US dollar exchange rate of 75:1) at closing, including through infusion by the current shareholders of SPNI and the promoters (founders) of ZEEL.

This will enable the combined company to drive sharper content creation across platforms, strengthen its footprint in the rapidly evolving digital ecosystem, bid for media rights in the fast-growing sports landscape and pursue other growth opportunities.

SPNI is an indirect subsidiary of Sony Pictures Entertainment Inc (SPE). Under the transactions contemplated by a non-compete agreement, SPE, through a subsidiary, will pay a non-compete fee to certain promoters (founders) of ZEEL, which will be used by such promoters (founders) to infuse primary equity capital into SPNI, entitling the promoters (founders) of ZEEL to acquire shares of SPNI, according to the companies.

This would eventually equal approximately 2.11 per cent of the shares of the combined company on a post-closing basis. After the closing, SPE will indirectly hold a majority 50.86 per cent of the combined company, the promoters (founders) of ZEEL will hold 3.99%, and the other ZEEL shareholders will hold a 45.15 per cent stake.

The combination of ZEEL and SPNI is expected to achieve business synergies and given their relative strengths in scripted, factual and sports programming, respective distribution footprints across India and iconic entertainment brands, the combined company should be well-positioned to meet the growing consumer demand for premium content across entertainment touchpoints and platforms.

The seamless blend of rich expertise in content creation, deep consumer insights and success across entertainment genres is expected to drive the combined company’s ability to accrue higher shareholder value.

Under the stewardship of the Sony Group, a global leader in consumer technologies, gaming and entertainment, the combined company is expected to be able to better compete with the world’s largest streaming players.

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