Sony Pictures Networks India has proposed a deal to take control of Zee Entertainment, India’s largest listed media company, whose founding family is resisting a rare revolt by foreign shareholders.
If the deal goes ahead, it would create one of India’s biggest media conglomerates, with dozens of channels encompassing Sony’s popular sports networks and Zee’s popular Hindi language news and entertainment channels, in addition to streaming services and film studios.
The companies said they had agreed to a non-binding term sheet for a merger that would involve Sony investing almost $1.6bn and taking a 53 per cent stake in the combined entity. The companies have 90 days to conduct due diligence and finalise the deal.
Zee’s Mumbai-listed shares surged 24 per cent on Wednesday after the deal was announced.
News of the merger came days after Zee’s biggest shareholder, US investment group Invesco, launched an effort to overhaul the board and oust chief executive Punit Goenka, the son of founder Subhash Chandra, amid dissatisfaction with the media group’s performance and corporate governance.
The Sony deal would allow Goenka to retain his role at the new entity, though Sony would nominate the majority of board directors.
Analysts said the arrangement could help to ease shareholder concerns about Goenka’s leadership, retaining his industry experience while forcing an improvement of checks and balances on the group’s finances and governance.
“What Sony is bringing is adult supervision. They understand the business; hopefully, they’ll have their own CFO and bring in some stronger supervisions and processes,” said Amit Tandon, founder of proxy adviser Institutional Investor Advisory Services. “[The deal] addresses a number of issues. It continues to keep Punit Goenka and Zee Group in the driver seat.”
Zee was launched in 1991 as India began to liberalise its tightly controlled economy, and became one of the country’s most popular and successful media businesses.
But Chandra ran into difficulties when he sought to diversify into the country’s troubled infrastructure sector, pledging most of his shareholding against huge bank loans he was unable to repay.
The family’s stake fell from 35 per cent in 2019 to less than 4 per cent, but Invesco, a long-term shareholder that had raised its stake to 18 per cent, was content to leave Goenka at the helm.
However, the company’s high cash burn, coupled with the erosion of its market share over the past few years, frustrated investors. Invesco called last week for an extraordinary shareholder meeting in an attempt to unseat Goenka.
Zee’s shares have risen more than 50 per cent since Invesco plans for the boardroom restructuring were revealed.
Sony had previously pursued Zee, whose media assets are seen as some of India’s most desirable, but talks broke down after Chandra engineered the deal with institutional investors, which allowed his son to maintain control of the group.
“The merger has a compelling industrial logic,” said one investor. “If you put Sony and Zee together, they’ll control a third of the Hindi entertainment market in India, which is very valuable to control. Hindi is where per capita incomes are low — and have a lot of room to grow.”
But allowing Goenka to remain in charge — and potentially increase his family’s stake over time — could give investors pause.
“The real question is whether shareholders want this deal to go ahead,” the investor said. “The market is telling you that investors want these guys out.”
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