Zee-Sony merger: All eyes now on shareholders of Zee Entertainment

With Zee Entertainment Enterprises Ltd announcing the merger of Zee and Sony Pictures Networks India, the role of the former's shareholders has become very important. All eyes will now be on when Zee will call for an extraordinary general meeting (EGM) to seek approval for the merger.

The promoter holding, led by Subhash Chandra and family, is less than 4 per cent, and how they managed to pull off a coup with Sony is quite a story. All this happened just a few days after Atlanta-based global fund Invesco, which holds over 17 per cent stake in the company, called for an EGM, seeking the ouster of Zee MD Punit Goenka from the board of the company.
 
In what has been a fascinating corporate battle filled with intrigue at every step, it would be interesting to see how things play out at the EGM. Zee too will call for an EGM to get a green signal from its shareholders for the merger proposal. The question is how delicately poised is the situation right now.

Also Read: Zee-Sony merger: How Invesco's move to oust Punit Goenka sprung Subhash Chandra into action

According to Shriram Subramanian, founder of InGovern, a proxy advisory firm, the approval of shareholders is what will clinch it. "It does not matter how much the Zee promoters hold. Even a person with a zero per cent holding can attempt a deal as long as the shareholders give the go-ahead," he says. In the midst of all this, it is possible that a hostile bid may take place and like any other case, goes back to the shareholders.  

There is no word on what will happen now or for that matter, who will make the first move. Subramanian points to a few potential scenarios - Invesco has already called for an EGM and Zee may decide to have it on the same day, leading to the most interesting situation. There is also a chance that Invesco withdraws its EGM call - in any case, it is to be conducted within 45 days after the request is made and no date has been announced yet.

"The whole development on Zee-Sony is actually now a positive for Invesco. It has Sony getting listed in India and the emergence of a massive new company," Subramanian explains. Whether Invesco will still push for the EGM and the appointment of six new independent directors is not clear.

Also Read: ADB cuts India's GDP growth forecast to 10% for this fiscal year

Chandra, with this deal, has kept potential bidders out and is confident that the board is firmly on his side, says a former Zee official. "The international investors have been quietened and Chandra has retained control." He anticipates Zee shares to do well because of fund infusion from Sony ($1.57 billion or Rs 12,000 crore) and "that will keep the minority and other opposing shareholders quiet and Invesco's argument too stands neutralised."

Meanwhile NV Capital co-founder Vivek Menon thinks that the "corporate governance overhang of Zee Entertainment should also fade away with this merger and enhance investor confidence. Also, the combined entity will be in a superior position to compete with Disney more effectively both on distribution and advertising side."

The merger announcement has surprised everyone. Chandra's Zee is sitting pretty now, unlike a few days ago when it was staring down the barrel. As an investment banker puts it, "Zee was looking for a white knight (and) is now close to being (a) king."

Also Read: Zee-Sony OTT platform: An ideal match, say experts