Zee says open to rival offers as founder Chandra questions Invesco’s intent

Could the bitter battle between Zee Entertainment Enterprises Ltd and some of its minority shareholders get any worse? Well, if the latest news reports are any indication, it possibly could. 

A Bloomberg report says that Zee would be open to rival offers even though it thinks that the planned merger with the Indian unit of Sony Corp is the best deal on the table. 

“This is the best deal for shareholders at this point in time as we are interested in maximization of values for all our stakeholders including shareholders, the company and consuming public," Zee chairman R. Gopalan said in a Bloomberg Television interview, adding that the company is open to “consider if there is another deal on the table”. 

What have Zee’s minority investors done to thwart the merger with Sony?

US asset manager Invesco, through its funds Invesco Developing Markets Fund and OFI China Global LLC, has called for a meeting of the company’s shareholders. After Zee refused to hold the meeting, the two shareholders approached the Bombay High Court, where the entertainment company, in turn, filed a suit, asking that the notice for a meeting be declared illegal. 

So, do Gopalan’s latest comments indicate Zee is climbing down?

That may appear to be the case, at least prima facie. But in fact, Zee is unlikely to back away from the deal with Sony, as the debt-laden company is not likely to find any other suitor of a comparable size, at least in the foreseeable future. 

Moreover, Zee Group founder Subhash Chandra has questioned the minority shareholders on their stand. “No matter who runs Zee but the company, to which I’ve and many of my friends have given their blood and sweat for the past 30 years, should be in the hands of someone under whose leadership the organisation should prosper and shareholders should be benefitted since I don’t have any profit or loss associated with this,” Chandra has said.  

Chandra also raised doubts over Invesco’s intentions. “Invesco is a good investor but in this case they are not revealing that what they will do after taking Zee, and in whose hands management will go?”

“You want to remove Punit Goenka? Okay, fine but what next? Have you done any deal with someone? The six directors given by them - what's their background? Do they have any relation with any particular company that wants to take over? Hence, Invesco should come out transparently and openly, and let the shareholders decide - whether they want to take the deal of Invesco or want to go with Sony's deal,” he said. 

What really are the demands by the minority shareholders?

The Invesco funds want the ouster of Zee board members including chief executive officer Punit Goenka, who is leading the talks with Sony. About 53% of the merged entity would be owned by Sony and the rest by Zee’s holders, according to the non-binding agreement signed last month.

What are the contours of the deal?

As part of the deal, unanimously agreed to, in principle, by the Zee board, Sony Pictures Networks India will effectively hold a 52.93% stake in the merged entity, while the remaining 47.07% will remain with Zee shareholders. 

Why is Sony the majority owner here?

This is because SPN India, Sony’s India entertainment arm, is investing an additional $1.5 billion, or Rs 11,615 crore, to capitalise the merged entity. This money will allow the new entity to grow its business further. Had Sony not infused more cash, Zee shareholders would have held a 61.25% stake. 

The merged entity will effectively own the biggest suite of entertainment content services in India, bypassing Disney India and Star India. It will also be bigger than Viacom 18, the joint venture of billionaire Mukesh Ambani’s Network 18 Group and US-based ViacomCBS.

Interestingly, Sony and Viacom18 were engaged in merger discussions but scrapped the talks last year as the Ambani-led group reportedly wanted a majority stake in the combined entity.