NCLT approves Zee Sony merger
The National Company Law Tribunal (NCLT), the apex approval authority for all corporate changes, has approved the merger of Zee Entertainment and Sony Pictures Networks India (SPNI). The approval was formally granted on August 10, 2023. It may be recollected that the talks on the merger had begun more than a year ago and there were strong objections to the merger, including from Invesco, one of the biggest investors in Zee Entertainment. However, over time Invesco had exited Zee in totality and those objections are not in the backburner. The merger will create a $10-billion media behemoth in India, which will be the largest influential media group in terms of media reach and content depth. What is more interesting is that the NCLT has chose to summarily dismiss all objections that were raised against the merger by the lenders and other stakeholders.
Ironically, most of the objections to the merger had come from the debenture trustees and ARCs acting on behalf of creditors. These included big names like Axis Finance, JC Flower Asset Reconstruction Co, IDBI Bank, Imax Corp, and IDBI Trusteeship among others. However, the NCLT decided to dismiss all such objections to the merger deal. In fact, it may be recollected that the Mumbai bench of the NCLT had earlier reserved its judgment after listening to objections from creditors who had raised concerns about the scheme. Post the news, the stock of Zee was trading nearly 15% higher at 3.00 pm and had been on an uptrend since the morning. On the NSE, the stock closed at ₹281.45 for August 10, 2023, a full 16.18% higher for the day. The company also saw very high volumes with over 11.40 crore shares being traded in the day on the NSE with turnover of over ₹3,015 crore.
Recap of the Zee Sony merger deal
The deal actually dates back to December 2021, when Zee Entertainment and Sony Pictures had reached an agreement to combine their businesses. It has taken nearly a year and half for the deal to be finally approved by the NCLT. Zee and Sony had approached the NCLT to seek approval for the merger, after securing the requisite approvals from the two principal stock exchanges, SEBI and from the Competition Commission of India (CCI). Things had become complicated after SEBI had barred Subhash Chandra and his son Punit Goenka from holding any directorial or key managerial positions (KMP) in any listed company in India. This was on account of alleged round tripping of funds. SEBI, in a detailed report, had alleged that the FDs of Zee Entertainment had been offered as pledge for loans taken by companies held by the promoters in their personal capacity. However, the Essel group companies eventually paid back the loans through multi-layered transfers from the parent company. This virtually amounted to round tripping of funds. That case is still on.
Time to look ahead for the Zee group
For now, the Securities Appellate Tribunal (SAT) has upheld SEBI's interim order, imposing a 1-year restraint on Subhash Chandra and Punit Goenka, the promoters of the Essel group. They cannot effectively hold board positions in publicly listed companies. However, the contribution of Subhash Chandra in pioneering the media industry in India and taking it to the masses cannot be overlooked. However, for the shareholders and for the investors of Zee Entertainment, it is time to look ahead. All public limited companies have an existence independent of their promoters and that is what investors must focus on. The merger creates a combined entity with a very strong media franchise and top quality content. It is now time to monetize this invaluable goldmine and the merger is the best reason for doing it.
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