ZEE and Sony sign agreement to create 2nd largest entertainment network in India

After three months of due diligence, Sony Pictures Networks India (SPN), a subsidiary of Sony Corp’s Sony Pictures Entertainment (SPE), has signed definitive merger agreements with Enterprises (ZEE)

Sony will hold a majority stake in the merged company, the ZEE family of promoters will own 3.99% with an option to increase the stake up to 20% relative to the market.

Closing of the transaction is subject to certain customary closing conditions, including regulatory, shareholder and third party approvals.

If it goes through, the merger, originally announced on September 22 when the two companies signed a non-binding term sheet, will create India’s second-largest entertainment network in terms of revenue and spawn an entity with 75 TV channels, two TV services. video streaming. (ZEE5 and Sony LIV), two film studios (Zee Studios and Sony Pictures Films India), a digital content studio (Studio NXT) and programming libraries.

Since the founders of ZEE only hold 3.99% of the capital, the success of the transaction depends on the support of shareholders, as a three-quarters majority will be required to approve the merger.

Invesco, which owns 17.88% of the capital of ZEE, had asked the board of directors to hold an extraordinary general meeting (EGM) of shareholders to vote on the removal of chief executive officer and CEO Punit Goenka from the board of directors of the company. ZEE’s board of directors denied the request and obtained an injunction against the Bombay High Court offshore investor. Invesco challenged the order before a division bench and the case is currently being heard. At the same time, the National Company Law Tribunal (NCLT) is also seized of the request filed by Invesco.

Under the definitive agreements, SPN will have a cash balance of $ 1.5 billion (assuming an INR / USD ratio of 75: 1) at closing, including through an injection by current SPN shareholders. and ZEE promoters.

This, the two companies said, will enable the merged company to generate more precise content creation across all platforms, strengthen its footprint in the rapidly evolving digital ecosystem, bid for media rights in the sports landscape by full growth and pursue other growth opportunities.

As part of the transactions contemplated by a non-compete agreement, SPE will pay a non-compete royalty to existing ZEE promoters, which will be used by the promoters to inject primary equity into SPN, giving them the right to acquire shares of SPN, which would end up equivalent to approximately 2.11% of the shares of the merged company after closing.

After closing, SPE will indirectly own a majority of 50.86% of the merged company, while the promoters of ZEE will hold 3.99%. The existing shareholders will hold 45.15% of the capital of the merged company.

Meanwhile, the two companies said Goenka will lead the merged company as chief executive and CEO, while the Sony group will appoint the majority of the board.

NP Singh, currently Managing Director and CEO of SPN, will join the new board after the merger. He will also take a broader leadership role at SPE as Chairman of Sony Pictures India (a division of SPE) reporting to Ravi Ahuja, Chairman of Global Television Studios at SPE.

“This is a milestone for all of us as two leading media and entertainment companies unite to lead the next era of entertainment filled with immense opportunity,” said Goenka. “The combined company will create a comprehensive entertainment business, enabling us to offer our consumers a wider choice of content across all platforms. ”

Goenka added that he was grateful to the ZEE, SPE and SPN teams for their efforts which led to the signing of the agreements on time.

“This merger presents an important opportunity to jointly take businesses to the next level and generate substantial growth on the global stage. I look forward to working with the guidance of the esteemed board members of the combined company to release the potential of this merger, and I wish NP Singh all the best in his new role at SPE, ”he added.

As part of the final agreements, the promoters of ZEE have undertaken to limit the capital they could hold in the combined company to 20% of its outstanding shares.

This construction does not give the promoters any right of pre-emption or otherwise to acquire shares of the merged company from the Sony group, the merged company or any other party.

All shares purchased by promoters of ZEE will be required to comply with all applicable laws, including pricing guidelines.

“Today marks an important milestone in our efforts to bring together some of the media industry’s strongest management teams, content creators and film libraries to create extraordinary entertainment and value for Indian consumers,” said said Ahuja. “I would especially like to thank NP Singh, who brought us the idea of ​​exploring this merger over a year ago. NP has done an amazing job in making SPN what it is today, and we look forward to continuing to work with him in his new role after the shutdown.

Singh added, “This merger will create a company that is best in class and redefine the contours of the media and entertainment industry. As SPE’s representative on the board of directors of the newly merged company, I will endeavor to provide strategic advice and support to the company’s operations team in achieving our vision. I am also excited about the opportunity to be appointed President of Sony Pictures India, to oversee SPE’s investments and create a larger footprint for Sony in India.

SPE was advised on this transaction by Morgan Stanley, KPMG Corporate Finance and Shardul Amarchand Mangaldas, while ZEE was advised by KPMG, JP Morgan, Trilegal and Boston Consulting Group.

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