Sony Group Corp. plans to cancel its India unit’s merger agreement with Zee Entertainment Enterprises Ltd., according to individuals who are acquainted with the dispute, ending two years of tension and tardiness in the formation of a $10 billion media conglomerate. If the deal falls through, Zee will be exposed to feasible failures.
If the deal is scuttled, it will leave Zee vulnerable to possible defaults. The development comes at a time when Mukesh Ambani is seeking to add new fuel to Reliance Industries’ media ambitions by negotiating a merger with the Walt Disney Co. India unit.
Based on the reveal, Sony will reportedly cancel the deal due to a disagreement over whether Zee CEO Punit Goenka, who is also the owner’s son, would be in charge of the newly combined company. Goenka would be in charge of the newly formed organization, according to the contract signed in 2021. However, Sony refuses to retain him as CEO amid a regulatory investigation. The Securities and Exchange Board of India (SEBI) barred then-Essel Group chairperson Subhash Chandra and Punit Goenka from retaining any director or key executive position in any listed company last year. The pair had been accused of violating their authority as directors of a publicly traded company by diverting resources for their personal benefit. In August 2023, the SEBI issued the confirmatory order.
The Accusations:
In a significant development, the Securities and Exchange Board of India (SEBI) has taken stringent action against Zee’s promoters, Punit Goenka and Subhash Chandra, by barring them from the boardrooms of four key Zee group companies. The affected entities include Zee Entertainment Enterprises Ltd, Zee Media Corporation, Zee Media Corp, and Zee Aakash News. This comes as part of a modified order, diverging from SEBI’s prior directive that restricted the duo from company boards.
SEBI has explicitly stated that the investigation against Goenka and Chandra will be concluded within eight months. The regulatory body emphasized that the two cannot assume directorial roles in any entity resulting from the merger or amalgamation of the four aforementioned companies. This specific stipulation holds implications for Goenka’s anticipated directorship in the post-merger Zee and Sony entity, which recently received approval from the National Company Law Tribunal (NCLT).
Madhabi Puri Buch, the Chairperson of SEBI, expressed grave concerns about Goenka’s conduct as the Managing Director and Chief Executive Officer of Zee Entertainment Enterprises Ltd. Buch noted that Goenka’s actions were in direct violation of fraud prevention norms and conflicted with the interests of 96% of ZEEL’s public shareholders. Consequently, the temporary restraint on Goenka was deemed necessary.
In a detailed 91-page order, Buch explained that the modification of the interim order took into account various factors, including the material on record and submissions from the concerned entities. SEBI underlined that Goenka, slated to become the Managing Director of the merged company post-merger, would wield significant managerial powers. However, his role at ZEEL is currently under scrutiny, necessitating his exclusion from the management of ZEEL or any corporate entity stemming from it until the investigation concludes.
Buch iterated that a thorough investigation is ongoing, potentially revealing additional acts of omission or commission by the entities. The findings in the existing order are considered preliminary, pending a more detailed examination of the facts and veracity of submissions.
The case revolves around allegations that Chandra and Goenka misused their positions as directors or Key Management Personnel (KMPs) of a listed company, siphoning off funds amounting to Rs 200 crore for personal gain. They were accused of divesting assets of ZEEL and other listed companies of the Essel Group for the benefit of associate entities under their control, as highlighted in SEBI’s interim order in June. The recent order from the Mumbai bench of the NCLT, headed by H V Subba Rao and Madhu Sinha, paves the way for the creation of a colossal $10-billion media conglomerate, marking a significant development in the country’s media landscape. Two months subsequently, the Securities Appellate Tribunal (SAT) overturned the SEBI order and ordered Goenka to collaborate with the financial valve in its investigation of him.
Impact:
Zee Entertainment witnessed a 10% dip in its shares during early trading on Tuesday, following Bloomberg’s report on potential abandonment of the $10 billion merger by Sony with its India unit. The Securities Appellate Tribunal’s (SAT) reversal of SEBI’s ban resulted in Punit Goenka resuming his role as MD & CEO on October 30, 2023. Despite concerns, Elara Capital’s Karan Taurani cautioned against premature assumptions about the deal’s termination. Taurani emphasized a low likelihood of Goenka jeopardizing the merger and advised waiting for more clarity. Zee Entertainment’s shares, currently at ₹251.95, have fluctuated within the ₹180–₹300 range over the past year due to lingering merger uncertainties. Notably, 1.35 crore shares, valued at ₹340.1 crore, exchanged hands in morning block deals with ambiguous parties. The stock’s inclusion in the F&O ban list, restricting new positions, coupled with today’s drop, pushed the company’s market capitalization below ₹25,000 crore, marking its lowest level since December 22.