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ZEE-Sony merger decoded: What this means for existing shareholders

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ZEE-Sony merger decoded: What this means for existing shareholders


The board of directors of entertainment major Zee Entertainment Enterprises (ZEE) has approved the binding agreement with Sony Pictures Networks India (SPN), a subsidiary of Sony Pictures Entertainment. What does this mean for existing shareholders? What's the shareholding post-merger and where does the new entity stand against its competition? All these questions and more explained.

ZEE-Sony merger decoded: What this means for existing shareholders
Zee Entertainment and Sony Picture Networks have inked the agreement that would make them the second-biggest entertainment group in the country. The merger would be executed via the transfer of shares via a rights issue.
In the rights issue, the company will make an offer to existing shareholders to buy additional shares in the company, at a discounted price. The shareholders would get 85 shares of the merged entity for every 100 shares held in ZEE.
The current board of directors of Zee has also approved a non-compete agreement (a contract that prohibits competition) between SPE Mauritius and Essel Holdings. The former will pay Rs 1,000 crore to Essel Mauritius, Subhash Chandra, Punit Goenka, and Amit Goenka for non-compete obligations. Promoters will infuse this liquidity in the company at Rs 300 per share.
Who owns how much?
In the merged entity,  Sony will hold a 50.86 percent stake, Essel will retain a 3.99 percent stake, and the public will own a 45.15 percent stake. The combined entity will be publicly listed in India.
Who’s leading the merged entity?
Punit Goenka will be the managing director and CEO of the merged entity. However, a majority of the board of directors will be nominated by Sony.
What do promoters own now?
The promoters and founders of the company cannot hold more than 20 percent in the combined entity. Any shares they will purchase post-merger will be in compliance with the laws. And they do not have any pre-emptive rights to acquire more shares from Sony or another party.
Essel group owns a 3.99 percent stake or 3.83 crore shares in the company, whereas the public owns a 96.01 percent stake or 92.19 crore.

Is there any liquidity infusion? How much?
Sony will get 26.49 crore shares and infuse Rs 7,948 crore in the company. Zee promoters will get over Rs 1,000 crore for non-compete, which would be infused in the company.
What is the shareholding post-merger?
Essel owns 6.92 crore shares or a 3.99 percent stake in the company in the merged entity. Sony will own 50.86 percent or 88.31 crore shares in the company. The public will own a 45.15 percent stake in the company, amounting to 78.39 crore shares. The total shareholding stands at 173.63 crore shares.
The combined entity is valued at Rs 52,000 crore after promoter and Sony’s infusion.
Where does the merged entity stand against the competition?
The Zee-Sony merged entity will be a market leader, owning 33 percent of the market share, bigger than 29 percent of Star India. The merged entity will also have a 63 percent market share in the Hindi movies segment and 51 percent share in the general entertainment segment.
Does Invesco have concerns still?
Yes, Invesco, the largest institutional shareholder of Zee, is concerned about the promoters being allowed to raise stake into the merged entity up to 20 percent. It says promoters allowed to raise stake via a preferential issue would be dilutive for retail shareholders.
Invesco also questioned how an entity can feel threatened by competition from Subhash Chandra and why does non-compete exist. Further, Invesco doesn’t want Goenka to be the MD and CEO of the merged entity. It feels he has not followed the right corporate governance practices. However, Goenka being MD and CEO is an integral part of the deal.
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