After mega media deal, how will Zee-Sony partnership unfold?

The merger of Zee Entertainment Enterprises and Sony Pictures Networks India creates the India’s second-largest entertainment network that will take on Star India, owned by The Walt Disney Company. 

The Sony-Zee alliance will include over 75 channels, two streaming platforms and command a 28% share of Indian TV viewership, putting it firmly ahead of leader Star India. 

Soon after announcing the pact, Punit Goenka, the CEO and managing director of Zee Entertainment Enterprises, told Business Standard in an interview that it was his job to take the best of both the firms. Goenka -- the son of Zee founder Subhash Chandra –has been told to lead the merged entity.

The deal comes in the middle of a faceoff between Chandra’s family and Zee’s largest shareholder Invesco, that has now reached the court. The US investment group, which holds an 18% stake, is seeking the ouster of Zee CEO Goenka.

Sony will hold a 50.88% stake in the merged company and the Chandra family 3.99%.  Zee’s public shareholders including Invesco will own the rest. 

Zee’s founding family has agreed to cap the equity they may own in the combined company to 20%. Analysts believe that the merger addresses concern on governance with Sony appointing a majority of directors to the board and Chandra family not getting preferential rights on stake increase.

In February, Invesco had facilitated merger talks between Zee and Reliance Industries, which owns the listed Network18 Media and Investments. But the talks fell through.

Goenka has now managed to win Sony’s confidence to lead the merged entity, despite Invesco’s bid to force him out. Chandra is also strengthening his commitment to Zee by infusing the non-compete fee of about Rs 1,100 crore arising out of the deal terms into the merged entity.

Sony India will transform from a private to a listed company after the merger and to deal with the public scrutiny that comes with it, Sony is banking on Goenka who has led Zee since 2008.

He has continued firmly in the driver’s seat even as his family’s stake fell from 35% in 2019 to nearly 4% now. Banks had invoked pledged Zee shares to recover dues owed by Chandra’s Essel group companies.

The merger will also ensure a more robust management supervision that can alleviate investor concerns.

To find out the significance of the Sony-Zee deal for Zee founder and Essel Group Chairman Subhash Chandra, we spoke to Business Standard's Pranjal Sharma, who is also the co-author of Chandra’s autobiography. 

The Bombay High Court is hearing Invesco’s appeal against an order that barred it from calling an EGM of Zee’s shareholders to oust Goenka. Zee’s merger with Sony would still need the approval from 75% of Zee shareholders and winning Invesco’s confidence is crucial.

With the uncertainty surrounding the merger over, experts believe that the merged entity holds a very promising future. By joining forces, the new company may well become the leading player in the entertainment industry. Zee’s good market position and its experience due to being a listed company will only be an added advantage. Now the ball is in the shareholder's court.