ZEEL-Sony proposed merger; Punit Goenka to remain MD & CEO, Sony to hold majority after infusion

The resultant merger ratio is expected to result in 47.07 per cent of the merged entity being held by ZEEL shareholders and the balance 52.93 per cent of the merged entity to be held by SPNI shareholders.

The Board of Directors of ZEE Entertainment Enterprises Limited (ZEEL) present and voting in its board meeting held on September 21, 2021, unanimously provided an in-principle approval for the merger between Sony Pictures Networks India (SPNI) & ZEEL. The Board has evaluated not only on financial parameters, but also on the strategic value which the partner brings to the table. The Board concluded that the merger will be in the best interest of all the shareholders and stakeholders.

In a press statement, ZEEL stated, "The merger is in line with ZEEL's strategy of achieving higher growth and profitability as a leading Media & Entertainment Company across South Asia." The Board has authorised the management of ZEEL to activate the required due diligence process. The shareholders of SPNI, will hold a majority stake in the merged entity. The shareholders of SPNI will also infuse growth capital into SPNI as part of the merger such that SPNI has approximately $1.575 billion at closing, for use in pursuing other growth opportunities. Basis the existing estimated equity values of ZEEL and SPNI, the indicative merger ratio would have been 61.25 per cent in favour of ZEEL. However, with the proposed infusion of growth capital into SPNI, the resultant merger ratio is expected to result in 47.07 per cent of the merged entity to be held by ZEEL shareholders and the balance 52.93 per cent of the merged entity to be held by SPNI shareholders.

ZEEL & SPNI 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 SPNI will conduct mutual diligence and finalise definitive agreement(s). The merged entity will be a publicly listed company in India. As part of the transaction, Mr. Punit Goenka will continue to be the Managing Director and CEO of the merged entity. Further, certain non-compete arrangements will be agreed upon between the promoters of ZEEL and the promoters of SPNI.

According to the term sheet, the promoter family is free to increase its shareholding from the current - 4 per cent to up to 20 per cet, in a manner that is in accordance with applicable law. Majority of the Board of Directors of the merged entity will be nominated by Sony Group. It is anticipated that the final transaction would be subject to completion of customary due diligence and execution of definitive agreements and required corporate, regulatory and thirdparty approvals, including the votes of ZEEL's shareholders.

Speaking on the development, R. Gopalan, Chairman, ZEE Entertainment Enterprises Ltd. said, "The Board of Directors at ZEEL have conducted a strategic review of the merger proposal between SPNI and ZEEL. As a Board that encompasses a blend of highly accomplished professionals having rich expertise across varied sectors, we always keep in mind the best interests of all the shareholders and ZEEL. We have unanimously provided an in-principle approval to the proposal and have advised the management to initiate the due diligence process. ZEEL continues to chart a strong growth trajectory and the Board firmly believes that this merger will further benefit ZEEL. The value of the merged entity and the immense synergies drawn between both the conglomerates will not only boost business growth but will also enable shareholders to benefit from its future successes. As per legal and regulatory guidelines, at the required stage, the proposal will be presented to the esteemed shareholders of ZEEL for their approval."

Summarising the principal terms of the termsheet:

i) The indicative initial merger ratio is expected to result in the shareholders of the Company holding approximately 47.07 per cent in the merged company and the promoters of Sony India holding approximately 52.93 per cent in the merged company (post infusion of growth capital into Sony India as part of the merger such that Sony India has a cash balance of approximately USD $1.5758).

(ii) The promoters of Sony India will have the right to appoint majority directors on the board of the merged company.

(iii) Punit Goenka will continue to provide services to the merged company as he currently provides to ZEEL and will be the initial managing director and chief executive officer of the merged company for five years on terms and conditions as may be agreed and subject to necessary nomination remuneration committee, board and shareholder approval of the merged company.

(iv) The board of the merged company will manage and control the business and affairs of the merged company and its subsidiaries.

(v) In consideration of the existing promoters of ZEEL and their affiliates agreeing not to compete with the merged company on terms and conditions as may be agreed, promoters of Sony India will transfer such number of shares of MergeCo such that the promoters of the Company will own/hold (when taken together with shares already held/owned) 3.99 per cent of the equity share capital of the merged company, subject to compliance with the applicable laws.

(vi) The Company and Sony India have agreed to a binding exclusivity for a period of 90 days from the date of the Termsheet.