The Indian media major and the local subsidiary of Japan’s Sony Pictures Entertainment on Wednesday announced the signing of a definitive merger agreement, culminating a three-month-long due-diligence process after they first announced a non-binding term sheet on September 22.
The merger is subject to regulatory, shareholder and third-party approvals, the two companies said.
While ZEE managing director and chief executive Punit Goenka is hopeful of completing the merger in 8-12 months, experts said it may take more time as Invesco’s petitions are pending in the Bombay high Court and the National Company Law Tribunal (NCLT), where the investor has sought an extraordinary general meeting of ZEE shareholders to vote on its requisition to remove Goenka.
“Typically, the process (completion of merger) takes about a year. However, there is a backlog of matters at the NCLT. Accordingly, the NCLT approval (for the ZEE-Sony deal) could be delayed,” said Sudip Mahapatra, partner at S&R Associate.
Also, Invesco may try to object to some of the approvals, leading to further delays, he added.
“The transaction will also require a host of approvals, such as from shareholders, creditors, lenders, contractual counterparties and regulatory authorities. Approvals would include NCLT and the Competition Commission of India,” Mahapatra said.
ZEE and Sony merger: 5 things to know about the entertainment behemoth
After three months of due diligence, Sony Pictures Networks India (SPN) has signed definitive agreements to merge with Zee Entertainment Enterprises (ZEE)Sony will hold majority stake in the merged company, ZEE promoter family to own 3.99% with an option to increase stake up to 20% from market. Here’s all you need to know about the deal
Following the execution of definitive documents, the parties will now look to complete the various conditions precedent.
According to Vaibhav Choukse, partner at law firm JSA, given the market presence of the parties, including their market shares, the deal may need the filing of the more detailed Form II, or long form, and require complex competition analysis.
“Basis that analysis, the CCI will examine if the combined entity would reduce competition in the market or if the other competitors could maintain sufficient competitive pressure on the combined entity,” he said. “The approval process in the case of Form II is generally longer than usual.”
If the proposed merger goes through, it will create a stronger No.2 player in the entertainment network space.
ZEE and Sony Pictures are India’s second and third largest entertainment networks by revenue, respectively. Their combination, if the deal goes through, will make a stronger No.2 player with 75 linear channels and two video streaming services, behind market leader Star & Disney India.
“In my view, market definition (relevant market) and combined market shares of the parties would play an important role before the CCI,” said Choukse.
According to the deal disclosures, Sony will own a majority of the merged company (50.8%). The ZEE promoter family will hold 3.99% and will have the option to increase that stake to 20% through market purchases.
The merged entity will have to factor in ongoing litigation as well.
“Upon fulfilment of the condition subsequent clauses of the definitive agreement and regulatory compliance, the newly formed company may absorb the pending litigation provided the understanding between the parties is not otherwise,” said Priyanka Sinha, partner of law firm A&P Partners.
