The company hosted a conference call on Sep 22, 2021. In the call the company was represented by Mr Punit Goenka-Managing Director & Chief Executive Officer and Mr. R. Gopalan, Chairman

Key takeaways of the call

Zee Entertainment Enterprises(ZEE) and Sony Pictures Networks India (SPNI) have entered into an exclusive, non-binding term sheet for the merger of the two companies.

After due diligence, the company will apply for regulatory approvals (CCI, NCLT, SEBI and others). The company does not believe there would be any challenges in getting CCI approval. CCI might look into the national-level market share and not state-level share. It would take 6-8 months for the completion of the merger process.

The merged entity will have a 25% market share in the broadcasting business in India.

Zee had earlier sold the sports business 5 years back and it will come back to the merged entity. In the last five years, the digital landscape has transformed the content monetization of the sports segment. This segment has strong growth opportunities.

Sony will be transferring 2% stake to ZEE promoters in lieu of non-compete agreements and this will reduce Sony stake in the merged entity to 51%. Zee share holders will have 49% in the merged entity including promoters share. Non-compete agreement requires approval of the majority of the public shareholders.

The Zee promoters will have 4% stake in the new entity and have an option to increase the stake up to 20% subject to all the required approvals. The stake increase might happen either through open market purchase or through preferential issue.

Sony has made it clear that Mr. Punit Goenka continuing as the MD and CEO of the merged company is an integral part of the deal.The Managing director remuneration remains the same as approved by Board of Directors. Any increase will be subject to the requisite approvals.

The SPNI will invest US $ 1.575 billion in the merged company's business. ZEE had a cash balance of around US $ 170 million as of Jun 31,2021. However, the total cash pile of US $ 1.8 billion together will be used for the growth of the merged company. Will it be in digital business or in sports sector will be decided by the new business. The company sees lot of opportunity on digital side, media side and on the sports side. Capital allocation in the merged company will be decided by the new board.

ZEE has a gap in comedy, sports and kids generes and the new board of the merged entity will have to take a call on the capital allocation.

Sports will be one of the focus areas of the merged entity but it will be the decision of the new board of the merged entity with respect to bidding and capital allocation.

Cost synergies: Globally, M&As have led to revenue synergies in the range of 6-10%(due to scale). Management expects maximum benefits to accrue on ad revenues, followed by subscription and international revenues. Initially, the focus will be on achieving revenue synergies while the shift in focus to cost optimization will happen over time. Channel rationalization will not be the focus area as maintaining and increasing reach would be the most important target. There might be an overlap between Zee and SPNI is Hindi GEC; however, most of these channels have unique content offerings and their own established brand identities.

Open offer: No open offer is required in a merger scheme. Zee has seen intense competition for the last 30 years and expects the intense completion for at least next 30 years. However, consolidation will definitely help the industry at large.

Board of Directors: Majority of the board of directors in the merged entity will be from Sony side. There will be one member in the Board of directors in the merged entity from Zee promoter family.

Brand: The merged entity might continue with both the brands. The organizations will come together and work as one.

Management Commentary:

Speaking on the development, Mr. R. Gopalan, Chairman, ZEE Entertainment Enterprises Ltd. said, "The Board of Directors at ZEEL have conducted a strategic review of the merger proposal between SPNI and ZEEL. As a Board that encompasses a blend of highly accomplished professionals having rich expertise across varied sectors, we always keep in mind the best interests of all the shareholders and ZEEL. We have unanimously provided an in-principal approval to the proposal and have advised the management to initiate the due diligence process. ZEEL continues to chart a strong growth trajectory and the Board firmly believes that this merger will further benefit ZEEL. The value of the merged entity and the immense synergies drawn between both the conglomerates will not only boost business growth but will also enable shareholders to benefit from its future successes. As per legal and regulatory guidelines, at the required stage, the proposal will be presented to the esteemed shareholders of ZEEL for their approval.”