IT HAS BEEN a busy 12 months for Punit Goenka. Sitting in his spacious room in Zee Entertainment Enterprises’ central Mumbai office, the relief on his face is palpable. He has just signed a deal to merge Zee, where Goenka is the MD & CEO, with Sony Pictures Networks India. Though the deal was in the making for over a year—as is normal in M&As—valuation was a contentious issue. With a combined revenue of $1.79 billion, this would be the second largest entertainment network after Star & Disney India, which has revenues of $1.8 billion, a shade more than the new entity. Importantly, the Zee-Sony entity will have 75 channels and a strong presence in entertainment, sports and regional markets, making it a serious player.
The sequence of events that led to the deal is quite apt for two companies that create content from such storylines for a living. The first move was made by Sony in November 2020, but that offer was not acceptable to Goenka. Things started moving about three months later when KPMG reached out to him on behalf of Sony with a better valuation. By August 2021, he was in the thick of it. “I was in London on holiday, but constantly on the phone with my team back here to thrash out the deal,” reveals Goenka. Why was Sony interested? N.P. Singh, MD & CEO of Sony Pictures Networks India, says his company wanted to expand its footprint. “For a while, we had discussed the possibility of doing something with Zee. Once we were clear, I took it to my bosses.”
The basic contours were agreed on, and a board meeting was scheduled for October. All hell broke loose when Invesco, the Atlanta-based investment management firm that holds an 18 per cent stake in Zee, accused it of corporate mis-governance. (Invesco did not respond to queries from Business Today.) Goenka and the promoters (Zee was started by his father, Subhash Chandra), with just 4 per cent stake, had limited say. “I told Sony about what was going on and left the decision to them,” he admits.
On September 22, Zee announced its plans to merge with Sony, and the deal was inked three months later. In the merged entity, Sony will hold a 50.86 per cent stake, while the promoters of Zee will hold 3.99 per cent. The remaining 45.15 per cent will be with Zee’s other shareholders. However, this is merely the beginning of what will be a long process: getting approvals at several levels; Zee having to deal with an angry Invesco, its largest shareholder; and the fact that both entities need each other in a challenging scenario, where growth is hard to come by.
A TALE OF TWO EMBATTLED FIRMS
Both the companies have been on a difficult wicket lately. Zee struggled with hard questions from Invesco, with Zee’s promoters having limited bargaining power (see Diminishing Stake). Plus, with a hefty debt (around ₹11,000 crore at the group holding company level), there was only so much Zee could do. A deal with Viacom18 was also considered but fell through. “Sony has come in as the white knight in this case,” says Vivek Menon, Managing Partner at NV Capital, a media and entertainment credit fund. To him, Goenka’s experience in broadcasting (he took over as MD & CEO in 2008) is useful, more so given that “he learnt the ropes from his father”.
Not all is well at Sony, too, here in India. Till 2017, the network had the broadcast rights to the Indian Premier League (IPL), the country’s marquee cricket tournament. Between FY15 and FY18, its revenue almost doubled from ₹3,342 crore to ₹6,277 crore, while net profit shot up 6x. But in September 2017, Star & Disney India (then Star India) bagged the IPL broadcasting rights, and Sony’s revenue stagnated (₹5,640 crore in FY21), while net profit dropped to ₹564 crore from ₹976 crore in FY20.
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