Zee-Sony Deal: Punit Goenka's Leadership Of Merged Entity Integral To Deal, Says Company
Zee Entertainment Enterprises Ltd. said its proposed merger with Sony Corp.'s India unit is a composite transaction that includes Punit Goenka remaining at the helm even as some institutional investors have sought his ouster.
"Sony has made it clear, Punit Goenka is an integral part of the deal," Vikas Somani, head, mergers and acquisition at Zee Entertainment, said during a conference call with analysts on the day the company announced the deal. "This is a composite deal."
Earlier in the day, the Zee Entertainment board said it had in-principle approved a merger with Sony Pictures Network India Pvt. subject to further due diligence and statutory approvals.
According to the nonbinding term sheet, Goenka will continue as managing director and chief executive officer for five years, subject to the merged company's board and shareholder approvals.
This may help consolidate Goenka's position which last week seemed to be on a sticky wicket after two institutional shareholders—Invesco Developing Markets Fund and its subsidiary OFI Global China Fund LLC— with a total 17.88%—stake had requisitioned an extraordinary general meeting of shareholders to vote on Goenka's removal as director of the company.
Under company law, shareholders holding not less than 10% of paid-up share capital can requisition an extraordinary general meeting.
On receiving a valid requisition, the company, as per law, has to hold an EGM within 45 days, failing which the meeting may be called by the shareholders (requisitionists) themselves within three months.
Sony Deal Vs Institutional Investor Requisitioned EGM
In the analyst call, both Goenka and Somany said little about the EGM.
"We have disclosed the notice for EGM by the institutional shareholders and as and when required we will make required disclosure," Goenka said during the call. "Can’t comment on the requirement of the EGM."
An analyst asked about the impact on the deal with Sony if the EGM was held and Goenka voted out.
All Somany said was that Goenka's continuation is "integral to the deal". The EGM is a "separate" matter.
The proposed merger will give promoters of Sony India's Japanese parent an over 50% shareholding in the combined entity and the hence the right to appoint majority directors on its board.
Goenka will take the the sole board seat granted to Zee Entertainment's promoters.
Despite the merger, his family, led by Subhash Chandra, the founder-promoter of Zee Entertainment and the Essel Group, will not see a dilution in their stake.
The deal proposal requires Sony India's promoters to transfer shares to the Zee promoters such that their stake is maintained at the current 3.99%. Those shares are consideration for a non-compete agreement to be signed by Zee's promoters.
While the merger will need approval of 75% of shareholders present and voting, the non-compete will require the support of a majority of Zee's public shareholders, Somany said.
The term sheet also includes an option for the Zee promoter to increase shareholding to 20% - though no other details were forthcoming in the media statement. In the analyst call, Goenka said no decision had been made regarding any increase in stake by his family. Options are open, he said.