Sony, Zee finalise merger even as courtroom feud continues

Sony’s India unit has finalised a deal with local rival Zee Entertainment to merge their television channels, film assets and streaming platforms, joining forces to take on the likes of Netflix and Disney in India.

India, still heavy on direct-to-home TV entertainment, has in the past few years seen a surge of competition from streaming platforms including Netflix Inc, Amazon.com Inc’s Prime Video and Walt Disney Co’s Hotstar.

The Sony-Zee alliance, with about 75 news, entertainment, sports and movie channels, now stands to overtake Disney’s Star India as the country’s biggest player.

The combined entity, which will be nearly 51 percent owned by Sony Pictures Networks India (SPNI) and 3.99 percent by Zee’s founders, will feature popular channels such as Sony MAX and Zee TV, and streaming platforms like ZEE5 and SonyLIV.

SPNI will have a cash balance of $1.5bn at close of deal, including an infusion by its own shareholders and the promoters of Zee, the companies said.

Zee’s top boss, Punit Goenka, will be named as the chief executive officer and managing director of the merged entity, which will be publicly listed in India.

Zee’s founders also agreed to cap the equity they may own in the combined company to 20 percent of its outstanding shares, according to the terms of the deal.

Boardroom battle

The merger comes amid a complicated boardroom and courtroom feud between Zee’s founders and its largest shareholder, Atlanta-based Invesco Developing Markets Fund, which owns an 18 percent stake.

Invesco, unhappy with the way Zee was run, has been persistently seeking a shareholder meeting to fire Goenka from the board and as CEO.

Zee founders have instead blamed the US fund of having a “certain larger design” in forcing a shareholder meeting. Invesco sought Goenka’s removal after its attempts to facilitate a buyout of Zee in March by Reliance Industries Ltd – helmed by Asia’s richest man Mukesh Ambani – fell through.

The Bombay High Court is hearing Invesco’s appeal against an October order that barred the US fund from calling a meeting of Zee’s shareholders. An adverse order for Zee could throw a spanner in the works as Invesco didn’t support the deal with Sony as the terms, even when the non-binding pact was announced in September, allowed Goenka to stay on as the CEO and raise the founders’ shareholding in the combined entity.

The definitive agreement retains those terms.

Most of the combined company’s board will be nominated by the Sony Group and include current SPNI CEO NP Singh as chairman of Sony Pictures India, a division of SPNI parent Sony Pictures Entertainment (SPE).

Singh said he will oversee SPE’s investments in India and identify opportunities to expand Sony’s footprint in the country, according to an internal memo seen by Reuters.

Wednesday’s announcement follows a 90-day due diligence period that closed on December 21, and while the parties have signed definitive agreements, deal close is subject to certain regulatory approvals.

Zee’s shares, which rocketed 35 percent to a market capitalisation of nearly $4.5bn when the deal was announced in September, seesawed in volatile trade early on Wednesday.