Couple of weeks after Zee Entertainment Enterprises Ltd (ZEEL) and Sony Pictures Networks India Private Limited (SPNI) signed a grand merger deal on September 22, one stakeholder of ZEEL – Invesco, has orchestrated a hostile takeover plan of the company and eventually tank the merger.
Reportedly, Subhash Chandra, Founder and Chairman Emeritus of ZEEL, smelled the coffee in time and announced that he will fight the takeover by Invesco tooth and nail by not letting it assume control of the Zee Group.
Won’t let it happen: Subhash Chandra
Speaking to DNA, Chandra remarked, “I don’t think this takeover by Invesco will ever happen. Let me tell Invesco, that you want a fight, then I will fight back. But I request Invesco to behave like a shareholder and not like an owner.
Chandra alleged that someone in Invesco might be indulging in insider trading as well. “Someone in Invesco is indulging in wrong practice. This is not the same Invesco which it once was. Maybe there is a Chinese connection to it. Experts are saying what they are doing is illegal. They could be indulging in insider trading,”
He further asked the center and SEBI to interfere by stating, “The Ministry of Corporate Affairs and the SEBI must not let Invesco break the local laws. They must investigate the several laws broken by Invesco and its hidden agenda to take over the company,”
Invesco wants to usurp control
It is pertinent to note that Invesco Ltd. is an American independent investment management company that is headquartered in Atlanta, Georgia, United States. Invesco, in addition to OFI Global China Fund LLC, own a combined 17.88 percent stake in ZEEL. Considering the delicate position the company is in right now, Invesco wants to usurp complete control and become the sole power.
In early September, in a similar attempt to launch a coup, Invesco had asked the company’s board to call an extraordinary general meeting to appoint six of its nominees and to remove the current MD and CEO, Punit Goenka. However, the Zee board outrightly rejected the move and the matter is now pending in the courts.
While Invesco wants to get rid of the Zee board, Sony, in its merger deal reaffirmed that as part of the transaction, Punit Goenka will continue to be the managing director and chief executive of the merged entity.
However, Sony Group will have the right to appoint majority directors on the board of the merged company, owing to its larger stake in the shareholding. After the merger, Sony Pictures will hold 53 percent while ZEEL will hold 47 percent of the total shareholding.
A mutually beneficial deal
As reported by TFI, the merger is a mutually beneficial deal for both parties. While it helps Zee to clear the slate of mounting debts, it simultaneously helps Sony to penetrate the Indian market even further using Zee’s strong expertise in content creation and its deep consumer connect established over the last 3 decades.
Also read: Sony-Zee merger: The mother of all entertainment genre mergers is here
Zee offers content ranging from movies to music and is also involved in the theatre business. It has a presence in 173 countries and is among the largest global content companies across genres, languages, and platforms. Meanwhile, Sony’s Indian unit has several channels including Sony Entertainment TV.
It has over 700 million viewers in India and is available in 167 countries. Sony has a big foothold in the sports industry with its sporting channels recently broadcasting UEFA Champions League, Bundesliga, Copa America, Euro 2020, the Indian cricket team’s tour to SENA nations and Australian open.
Zee group cleaning the slate
As of March 2021, ZEEL had debt amounting to Rs 3.17 billion. However, it also had Rs 22.0 billion in cash to offset that – meaning it had Rs 18.8 billion in net cash. While the significant net cash meant that the group did not have a heavy debt load, the investors remained wary of the debt accumulated.
As reported by TFI, Zee was among the most profitable and professionally run companies. However, the investments of the Zee group in the infrastructure market went truly south due to the collapse of IL&FS. The banks tightened lending norms after the collapse of the IL&FS Group and this led to a massive crisis in the NBFC market. As the investment of the Zee group was exposed to NBFCs, it led to a sharp decline in the share prices of the Zee group.
The rising debts were one of the reasons that Zee’s stock prices took a tumbling when in 2019, former Chairman Subhash Chandra admitted to defaulting on payments. At the time, it was reported that Chandra might sell half of his stake to a group of companies led by US media giant Comcast.
However, Zee continued to work under the radar, and in August this year, Chandra announced that 91 percent of overall debt had been paid. The merger deal had got the entertainment industry excited but with the hostile takeover controversy, some of the sheen has been taken away from the news.