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ZEE-SONY merger a Breakthrough in Indian TV & Digital Entertainment Sector

After three months of due diligence, Sony Pictures Networks India (SPN), a subsidiary of Sony Corp’s Sony Pictures Entertainment (SPE), and  Zee Entertainment Enterprises (ZEE) have finally concluded the merger negotiations with a resolution to form the second largest entertainment entity in India. This definitive agreement to merge came amid a dispute with an investor seeking to oust the existing management. Sony Network will own a 50.86% stake in the new merged entity, while Essel Holdings Ltd. will own 3.99%with an option to increase stake up to 20% from market, while the Public shareholders will own 45.15% according to the merger agreement.

The merger was led by Punit Goenka as its MD and CEO, while the Sony Group had nominated a majority of the board of directors.The merger of two entertainment giants, was initially announced on September 22, 2021 when both party companies signed a non-binding term sheet, to create India’s second-largest entertainment network by revenue and giving rise to an entity with 75 TV entertainment channels, two video streaming platforms (ZEE5 & Sony LIV), two film studios (Zee Studios and Sony Pictures Films India), a digital studio (Studio NXT), and a few programming libraries.

As announced ZEE’s founders possess 3.99% stake, the deal hinges on shareholder backing as a three-fourths majority was required to approve the merger.

17.88% stakeholder in ZEE the Invesco, had requisitioned to call for an extraordinary general meeting (EGM) of the shareholders aiming the removal of MD and CEO Punit Goenka from the company’s board. The ZEE board, having declined the request, got an injunction against the offshore investor from the high court of Bombay. Invesco impugned the order before the  division bench and the case is in progress till now. Along with it the same application is also being heard by the National Company Law Tribunal (NCLT) filed by the Invesco.

Under the terms of the agreements, Sony Pictures is left with a balance of $1.5 billion at closing, including through an infusion by the current shareholders of SPN and the promoters of ZEE.

Under the process contemplated by the non-compete agreement, SPE will pay a non-compete fee to the existing promoters of ZEE, which will be used by the promoters in future to infuse primary equity capital into SPN, finally to acquire shares of SPN, which would equalize to  approx 2.11% of the equity shares of the merged company on a post-closing basis.

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

However this construct did not provide the promoters any pre-emptive or additional rights to acquire equity in the merged company from the Sony Network, the merged company, or any other entity. The Share promoter purchasers of ZEE will have to follow all applicable laws, including the specified pricing guidelines.

SPE in the merger was advised by Morgan Stanley, KPMG Corporate Finance companies, and Law firm Shardul Amarchand Mangaldas, while ZEE was advised by KPMG, JP Morgan audit companies, Boston Consulting Group and Trilegal law firm. 

The merger transaction in short

  • ZEEL and SPNI combines their working linear networks, assets, production operations 
  • The new Combined entity would be a publicly listed company in India where Sony Pictures Entertainment would be a majority stakeholder.
  • Sony Pictures Entertainment Inc., the parent org of SPNI, would become one of the  promoters of the new combined entity.
  • Sony Group will nominate the majority board of directors of the combined company.
  • Sony Group promised to pay non-compete fees in USD equivalent of INR 1,101 crore to the promoters of ZEEL.
    • Promoters of ZEEL have commit to invest the said amount in SPNI prior to the closing the transaction, aiming an eventual holding of ZEEL Promoters to be 3.99% in new combined entity
  • SPNI is expected to have funds of US$1.5bn at closing, to enable the combined company to gain sharper content creation.
  • The transaction was subject to certain closing conditions, including regulatory, shareholder, and third-party approvals.

Story in Background 

Both the companies despite having deep footprints in the Indian market have been on a difficult wicket lately. Zee struggled with Invesco due to Zee’s promoters having limited bargaining power (Diminishing Stake). Plus, with a hefty debt of around INR 11,000 crore at the holding company, there was only that much Zee network could do. Its deal with Viacom18 Network was also considered but fell through. “Sony has been proved to be a white knight in the present case,” stated Vivek Menon, Managing Partner at NV Capital. 

Not all is fine at Sony pictures too, here in the Indian market. The network had the broadcast rights to the Indian Premier League (IPL) till 2017, also the Indian marquee cricket tournament. Company’s revenue almost doubled between FY15 and FY18, while net profit rose up 6x. Subsequently Star & Disney India bagged the IPL broadcasting rights which proved to be a turning point for the company, and Sony’s revenue declined Rs 5,640 crore in FY21, while net profit dropped further to Rs 564 crore from Rs 976 crore in FY20.

Sony derived 46 per cent of its revenue from advertising i.e Rs 2,563 crore, with subscription’s contribution at least 42 percent i.e. Rs 2,329 crore and the rest deriving primarily from licensing. The organization’s flagship channel, Sony Entertainment, points out industry trackers, bringing in around INR 1,000 crore every year whereas Zee’s major channel, Zee TV, also derives almost equivalent amount of money, while Sony SAB and Sony Max earn approx INR 450 crore and Rs 375 crore, respectively.

Merger – How is it Beneficial for ZEE-SONY?

The companies are expecting the merged company to drive sharper content creation across diverse platforms, strengthen its footprint in the rapidly evolving digital entertainment ecosystem, bid for media rights in the ever changing and dynamic sports landscape along with exploring growth opportunities through innovation.

Analysts estimate the merger will create a new media and entertainment powerhouse in India, opening a way of opportunities and potential for experimentation with expected revenues of Rs 15,000 crore.

Analysts opine, the deal is a perfect strategic match since Sony is a big fish in the Hindi general entertainment channel (GEC) market, especially non-fiction. Zee has strong footprints in media and movies of all genres along with the regional GEC area. Zee holds the 17% network viewing share, whereas Sony possesses a 10-12% share. 

In terms of synergies, Sony has been performing really well in sports and mainstream GEC, but Zee has a high recall on media and regional genres, which Sony has less of or none of. However Sony’s foreign repertoire would be exploited for ZEE to use and generate revenue.

This acquisition is expected to resolve ZEE Entertainment’s corporate governance issues, boosting investor trust in the organization. Both the entertainment giants have a robust film library that can transform OTT and TV offerings.

As mentioned in Zee’s yearly report, its network in India interconnects over 3,000 brands with their targeted customers.

According to ZEEL’s figures, the company derived a profit of Rs 800 crore on revenues of Rs 7,730 crore in the FY ending March 2021.


Analysts expect that the merger of Zee and Sony will be a game changer to the  synergies between the two giants that will exponentially boost the business and the sector.

Experts speculate the combination will create the largest entertainment network in near future with a 26 percent viewership share within India. In addition, Zee-Sony corporation will command a share of 51 percent as of Q1FY22 data in the segment of Hindi general entertainment channel (GEC), which is one of the highest viewed genres on TV. On the other hand In Hindi movies, which is another top-performing genre, the Zee-Sony entity will hold a viewership share of 63 percent.

This is the reason analysts forecast consolidation as a big positive and that the merged entity will be a tough contender to replace market leaders Star and Disney in the long run.

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