The two firms have signed a non-binding term sheet to integrate their respective linear networks, digital assets, production divisions, and program libraries.

Zee Entertainment Enterprises Ltd (ZEELBoard )’s of Directors has given in-principle approval to the company’s merger with Sony Pictures Networks India, which could result in a media conglomerate that spans platforms such as cable television, digital video streaming, production operations, and music and video libraries.

Zee Entertainment merger with Sony Pictures Networks, and contours of the deal
Zee Entertainment merger with Sony Pictures Networks, and contours of the deal

What are the specifics of the agreement?

The two firms have signed a non-binding term sheet to integrate their respective linear networks, digital assets, production divisions, and program libraries. The term sheet stipulates a 90-day exclusive period for ZEEL and Sony Pictures Networks India to conduct mutual diligence and finalize formal agreements.

In India, the merging entity will be a publicly traded firm. Along with the merger, Sony shareholders will invest $1.575 billion in the organization, giving Sony stockholders a 52.93 percent stake in the new company, while ZEEL shareholders would own 47.07 percent. Currently, the public owns 96.01 percent of ZEEL, while its promoters own 3.99 percent.

How does the agreement benefit ZEEL?

While ZEEL has a higher network viewing share than Sony, it gets the majority of its strength from regional general entertainment channels (GEC) and movies, whereas Sony has a better footing in Hindi GEC and sports.

In fact, Zee Entertainment sold its sports portfolio under the Ten Sports brand to Sony Pictures Networks India in 2018, coupled with a non-compete agreement that barred Zee from joining the sports market. Furthermore, analysts believe that with a multinational business like Sony on board, such a merger could help ZEEL alleviate some of the concerns lately voiced by significant shareholders about corporate governance difficulties.

What does Sony stand to gain?

Sony Pictures Networks was looking for a local partner in India to compete with the Disney-Star cooperation, which has been dominating the content industry. The company had also been in talks with Reliance-owned Viacom about a possible merger, but the talks were called off last year after the parties couldn’t agree on issues such as value and other merger terms.

Sony may also see certain voids filled with the ZEEL agreement, particularly in its bouquet of entertainment channels, which has relied heavily on seasonal programs such as Kaun Banega Crorepati for its popularity. ZEEL is present in the broadcasting, movies, music, digital, live entertainment, and theatre businesses in India and abroad, with more than 260,000 hours of television content and the world’s largest Hindi film library with rights to more than 4,800 movie titles in various languages, whereas Sony Pictures Networks India has 700 million viewers in India and is available in 167 countries.

Is there potential for synergy in the OTT industry as well?

The OTT segment, which is driven by American behemoths such as Netflix, Amazon Prime, and Disney+Hotstar, may see more competition from the collaboration of relatively smaller businesses like Sony and Zee.

According to research released earlier this year by the independent transaction consulting firm RBSA Advisors, Netflix and Amazon Prime Video each have a 20% market share, followed by Disney+Hotstar at 17%, ZEE5 at 9%, and SonyLIV and ALTBalaji at 4% apiece. While the specifics of the merger have yet to be determined, such as whether SonyLIV and ZEE5 will operate as one brand or independently, the combined market share of these platforms might put them in contention for third place in the Indian OTT market.

Is the transaction also affecting Zee Group’s other corporate entities?

No, the Zee Group’s news media and education divisions are run by separate corporations, Zee Media Corporation Ltd and Zee Learn Ltd, respectively. Both of them are publicly traded enterprises that are not covered by ZEEL’s agreement with Sony.

According to a news release, while Sony Pictures Networks India will retain a majority stake following the merger, a majority of the new entity’s board of directors will be appointed by the Sony Group, Puneet Goenka will continue to be the merged entity’s Managing Director and CEO.

The merger announcement follows the withdrawal of ZEEL’s main owners, Invesco Oppenheimer Developing Markets Fund and OFI Global China Fund LLC, from the company’s board, as well as proxy advice companies InGovern and Investor Advisory Services citing concerns about corporate mismanagement.

“Furthermore, various non-compete agreements will be reached between the promoters of ZEEL and the promoters of SPNI.” According to the term sheet, the promoter family is free to raise its shareholding from the present 4% to up to 20% in compliance with applicable law,” according to the release.