How ZEE’s Punit Goenka bailed out of an imminent ouster

The much talked about Zee Entertainment (ZEEL) and Sony Pictures Network (SPN) merger is finally going to see the light of the day. The two media entities announced on Wednesday that they have signed definitive agreements to merge and combine their linear networks, digital assets, production operations and programme libraries. At the sprawling boardroom of ZEEL’s headquarters in Mumbai, MD & CEO, Punit Goenka (who is going to lead the merged entity) looks sleep-deprived. “The only thing that I haven’t been able to do is sleep. We have been working in three time zones, Tokyo, LA and India. Tokyo starts early in the morning, and by the time we finish our day, LA begins. Now the entire thing is finally stitched, the only thing that is left is the procedure and regulatory framework that needs to be taken forward from here.”

There are more sleepless nights on the anvil for Goenka, as a merger of this magnitude will not be a cake-walk. There is a sense of relief in his voice now that he has managed to secure his position. 90 days ago, his ouster seemed imminent when the company’s largest stakeholder, the U.S.-based hedge fund, Invesco Developing Market Funds (which owns an 18.44% stake), called for an EGM to oust him on charges of corporate governance violation. A large section of the industry had written him off, while there was a section which also believed that Punit’s father—the founder of Zee—Subhash Chandra (though he is no longer part of the business), was not the kind to give up. The latter was indeed right, as Chandra has been instrumental in stitching the deal, and Punit doesn’t deny it either. “Dr Chandra is not involved in the business since March 2020, but since he is my father, he re-worked the deal before it got announced, and he did bless the deal but he had no role in the negotiations with Sony,” he says.

The company will file for clearances from CCI, SEBI and the stock exchange in January. “The moment we get these clearances we will file in the NCLT. It is a composite scheme that is being filed which comprises merger details, terms of the merger, terms of the non-compete, and the amended articles of the association of the merger. Since it is one composite scheme, there is no need for multiple approvals,” he explains.

Once the regulatory approvals come through Sony Pictures Entertainment, through its Indian entity, SPNI will indirectly hold a majority 50.86% of the combined company; the promoters (founders) of ZEEL will hold 3.99%, and the other ZEEL shareholders will hold a 45.15% stake. The new board would comprise nine members, out of which five would be nominated by SPNI; three would be independent members, and Goenka as MD would also get a position in the board.

So, what has been Invesco’s response to the deal? Goenka says he has no idea. “I have not spoken to Invesco since the matter became sub judice. Personally, I don’t like conflict, I will happily resolve the issue, but since they have moved to court, and if they want a resolution, they should approach us.”

The market is abuzz with varied theories, such as Invesco backing Sony for this deal, and having made sure that the Zee founders have been allowed to increase their stake in the company to 20%—not at a discounted rate, but at market price. Goenka says that SPNI signed on the dotted line only after it was convinced about ZEEL’s way of running the business. “It was complete due diligence. All financial and legal aspects have been discussed; full disclosures have been made—they are fully aware of what has happened in the past. They were fully satisfied before they went ahead and signed the deal.”

Goenka claims that the due diligence process sailed through without any hiccups. “When I sold the sports business to Sony (in January 2018) it took me 15 months and that didn’t need any SEBI or NCLT approval. In this situation, Sony recognized that the window is so short, if they had to get it done, this was the time.” He believes that his past interaction with the media giant helped him to fast forward the deal.

How did the deal happen?

The ZEE-Sony merger has been in the works since November 2020, says Goenka. “They approached us through a banker with a potential deal to merge with them, of course, the deal was not what it is now, it has been cooked significantly.” The terms of the deal were not as per ZEEL’s expectations, and it fell through. In August 2021, Sony got back with a revised offer. “We had pretty much decided by the end of August to go ahead with the deal. We were going to take it to the board in October, but in September the boardroom drama began and everything went out of control.” When the battle with Invesco broke out, Sony was hesitant to go ahead with the deal, and this time around it was ZEEL that initiated the talks in a desperate attempt to retain control.

In February 2021, ZEEL was also in talks with Reliance for a potential merger. “We also got offers from financial institutions, and we evaluated all the offers but this was the one that suited us the best.”

With just one board position, it would increasingly get difficult for Goenka to have his way in the business. To add to that, most global conglomerates are hierarchical and often micromanage. “They have assured me the opposite,” says Goenka. “When NP (N.P. Singh, MD, Sony Pictures Network India) runs the Sony business in India, they don’t interfere or micromanage. Of course, there will be strategic guidance from the parent, but in my view the way I was dealing with my board, I will deal with the new board,” he further adds.

The ZEEL-Sony merger will make it the biggest media conglomerate in India with a market share of 26%, and that says Goenka will bring revenue benefits to the tune of 6%-8% which will improve the bottom-line. “I expect in FY24, it will help us make an even more profitable business. We will be a media powerhouse from the emerging markets.”

Goenka considers the merger to be a means to take the media empire created by his father to the next level of growth. “The 2019 part—when ZEEL promoters had to dilute 36% of the family's 40% stake to settle an ₹11,000 crore debt—was more emotional for us because from being the largest shareholder, we suddenly became one of the minority shareholders. The current one has been a fun journey, as we are setting up the company for the next 30 years, and getting a strategic investor like Sony is exciting,” claims Goenka.