(Source: BloombergQuint)

Zee Has Received Interest From Tech Firms For Promoter Stake, Says CEO Punit Goenka

Zee Entertainment Enterprises Ltd. said it has so far received interest from technology companies as promoters of India’s largest broadcaster plan to sell up to half their stake.

The company expects at least binding offers to come in and binding deals to happen in the next six months, Punit Goenka, managing director and chief executive officer at Zee Entertainment Ltd., told BloombergQuint in an interview. The promoter Essel Group is looking at an equal strategic partnership at this stage, he said.

Promoters, led by Subhash Chandra, plan to sell up to half of their 41 percent holding in the company, Essel Group said in an exchange filing by Zee Entertainment. That’s part of its strategy to turn into a tech-media company, it said.

Zee Entertainment, which caters to 1.3 billion south Asian viewers, wants a partner to bring in technology and global reach, Goenka said.

Watch the full conversation here:

Edited excerpts from the conversation:

Please explain why promoters announced they are looking to sell upto 50 percent of their stake?

We did not want the speculation to take over given all uncertainties of the stock market as it exists today. Second, the SEBI insider trading norms called for us to declare this. It is a very significant development when it comes to promoter family.

In the statement the promoters said they are undertaking a strategic review of the entire portfolio as a result of which they decided to sell stake. What prompted you to select Zee Entertainment?

We look at it from a perspective where our ambition at Zee Entertainment is truly to be a global media powerhouse, catering not just to South Asians but beyond. Our other media assets of the group are confined due to laws and regulations to remain constrained to the Indian market and therefore Zee Entertainment is our conduit for fulfilling our ambitious plans.

What is the global plan for Zee as it is already present in several countries?

Zee is currently catering to South Asia. We are refocusing our content for global audiences in several markets. We believe that we need certain strategic interventions when it comes to leveraging on a strong partner to get our reach beyond our current 1.3 billion viewers. We believe that a strategic partner can add the technology reforms to our platform to take it to the next level of growth. If we were to do it on our own, it would take us much longer. We believe that for the benefit of the minority shareholders, diluting at the present level won’t be right. And the promoters are therefore demonstrating their intent, commitment to this business by saying that we are willing to give half of their shareholding to the strategic partner.

Since you have strong presence in South Asia, the regions left are Europe and America. Would the potential partner be from those regions?

Europe, the U.S. and even China is a big market which is still untapped by us. So, it could be anywhere.

So, you are open to Chinese internet companies buying upto 50 percent of your promoter stake?

We have to first see what is the value addition of the strategic partner who wants to do business.

You mentioned that you already have some proposals which have come in.

Those interested have come in.

What are the profiles of those who have expressed interest? What about the content backing?

They are largely technology companies. They have some content but not enough for Indian diaspora per se.

You expect the entire process to be completed in six months?

We are expecting at least binding offers to come in and binding deals to happen by that time. Depending on the profile of the strategic partner, we may need certain regulatory approvals which may take slightly longer.

The entertainment sector is allowed 100 percent foreign direct investment. Are you open to increasing the foreign stake, if the partner says so?

At this stage, no. We are looking at an equal partnership, given that we have managed to build the business to this level on our own. I would expect any strategic partner to show us that respect, that we are capable of addressing the South Asian market in a manner that we can continuously expand. The value which they add to us to take us beyond the South Asia.

To make Zee Entertainment a tech media company, you need to invest in technology. Will the promoters bring in capital for that purpose?

So, the tech part of the business is done by the step-down subsidiary, which is Zee5. From that perspective, the promoter may choose to bring capital back into the business or we can dilute down to subsidiary level giving higher control to the strategic player through a step-down approach.

So, why not look for a strategic partner for Zee5 rather than Zee Entertainment?

Because of the intricacies of content linkages between the two. Zee5’s dependence on content is largely through Zee. Therefore, the times that the strategic partner at Zee5 level would want, it is easier for us to bring someone at Zee level who buys the story of Zee5 along with Zee Entertainment.

What is the new priority of capital allocation for Essel Group?

Essel Group considers lot of business going forward. It is a large family. Therefore, I am not at liberty to diverge those things. We did (in the statement) talk about the reconsidered business - the semiconductors business. But there are enough other new age tech businesses which the group would like to consider.

The essel group conversation should be another discussion. It is not linked to the Zee entertainment discussion.

It (Zee and Essel) is linked, in the sense that your entire foray into another segment is backed by a strong balance sheet of Zee, in terms of shares which are pledged. Every rating agency says that it is backed by a flagship brand.

No, the two are not linked.

If the rating agency says that then they are judging the company in a wrong manner. The pledge does stand, and they have gone up beyond what is comfortable levels for us. We have already put in a plan for de-leveraging group from pledge levels which are the assets which are being divested. From that perspective, the two are to be considered independent.

How big is the Essel Group (promoter group) in terms of revenue and debt? There will be questions raised about why it is happening.

If people have made up their minds about why things are happening for a certain reason, then I can’t help it. I am trying to project that this is happening because we want to bring in a strategic partner for the betterment of Zee Entertainment. If you can’t believe, I can’t help.

Is this stake sale in any way linked to a broader succession plan within the group?

It is a large group and we have a lot of family members. We will diversify into several businesses going forward. We are not going to stop at where we are today. So, for that if the capital allocation needs to realign,then we will realign.

How confident are you of the kind of technology that partners who may envisage interest will bring on the table? Will global reach and technology be the key points of discussion?

Those two will be prime objectives. The bidding is a separate matter. Our first alignment will be who brings most value from the two angles of technology as well as the global reach for us. That will be the deciding factor.

Is there a model like Netflix to guide?

It is too early to talk about those details. We can divulge more as the things progress further.