The logo of Japan's Sony on the wall of the company's headquarters in Tokyo on August 4, 2020. Photo: AFP / Kazuhiro Nogi

Japanese conglomerate Sony Corp’s move to merge its Indian subsidiary Sony Pictures Networks India with Zee Entertainment, a homegrown TV channel, has achieved a significant milestone.

On December 22, the board of directors of Zee Entertainment Enterprises Ltd approved the merger with Sony Pictures Networks India. According to the terms, Sony Pictures Networks India will now hold a 50.86% in the merged identity, while Zee Entertainment will hold 3.99% and the public shareholding will be 45.15%.

Despite its low shareholding, Zee’s founding family will continue to be in the driving seat. The merged entity will be led by Punit Goenka, the current CEO of Zee Entertainment, but a majority of the board of directors will be nominated by the Sony Group. This was an integral part of the deal.

The combined entity will be India’s second-largest entertainment firm, with 75 TV channels and a revenue of about 140 billion rupees (US$1.8 billion). Mumbai-based Star India, a wholly-owned subsidiary of The Walt Disney Company India, is the leading player.

The merger between the two entities was announced on September 22. Both companies had agreed to a 90-day period to conduct due diligence for the process. The period came to an end on December 21.

California-based Sony Pictures Entertainment, the parent of Sony Pictures Networks India, will pay a non-compete fee to Zee promoters. The merged identity will look to bolster its satellite television channels, movies, music and digital businesses.

The merged entity will be listed in India and the closing of the transaction will be subject to regulatory, shareholder and third-party approvals. Since Zee founders will have just a 3.99% stake in the merged entity, it will require two-thirds approval from shareholders. If approved by regulators and shareholders, the deal is expected to be completed by the end of March next year.

As part of the agreement, Zee promoters have agreed to limit the equity they may own in the combined company to 20% of its outstanding shares.

Invesco factor

US investment company Invesco, one of the largest minority shareholders in Zee (with an 18% stake) has been raising objections about corporate governance and had called for the ouster of Goenka.

On September 11, it asked Zee to call an extraordinary general meeting. On September 22, Zee announced the plan to merge with Sony. Both Invesco and the Zee management continue to have court battles.

As for Sony, this is not the first time it tried to acquire Zee. In 2019, when Zee was facing a debt crisis, Sony was shortlisted for a stake sale but the talks failed. Zee sold an 11% stake to Invesco instead.