Zee-Sony $10 Billion Merger Progressing Despite Legal Hurdles, Expected by December

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The recently sanctioned $10-billion merger between Zee and Sony, which received approval from the National Company Law Tribunal (NCLT) last month, is on track to be realized by December. However, amid ongoing legal challenges against Zee Entertainment (ZEEL), there may be a slight delay in the process. According to Karan Taurani, the Senior Vice-President of Research at brokerage Elara Capital, the delay is expected to be minimal. Typically, the record date for a merger is set one week before delisting, but there might be a slight delay in filing the closing precedents (CPs) of the merged entity. Consequently, relisting may occur in the second week of December 2023, instead of the initially anticipated second week of November.

Following the merger announcement in December 2021, ZEEL shareholders are slated to receive 85 shares of the combined entity for every 100 shares they held in ZEEL. Subsequently, ZEEL stock will be delisted and relisted under the merged company after the exchange process.

On Monday, ZEEL shares experienced a decline on the BSE, closing at Rs 268.15 per share. It's worth noting that the markets were closed on Tuesday due to Ganesh Chathurthi.

ZEEL faced significant legal challenges in the previous week, with the Securities Appellate Tribunal (SAT) postponing the matter related to the ban imposed on Zee promoter Punit Goenka by the Securities and Exchange Board of India (Sebi) to September 27. This marked the third postponement within a month, with previous adjournments occurring on September 8 and September 14.

Meanwhile, Axis Finance has become the second financial institution, following IDBI Bank, to challenge the NCLT's approval of the Zee-Sony merger in the National Company Law Appellate Tribunal (NCLAT). Axis Finance's petition in the NCLAT argues that the NCLT failed to recognize the scheme as being inherently illegal, unfair, and unjust. The petition also contends that addressing the issue of Punit Goenka's leadership in the merged entity is crucial for a fair NCLT approval, as his role contradicts Sebi's order banning him from holding directorships for a year.

Senior advocate HP Ranina, said, emphasized the significance of NCLAT's response to the lenders' appeal. The NCLAT has requested that Zee provide a response to both cases before issuing a decision. Ranina acknowledged that legal challenges during a merger are discomforting for any company but stressed the importance of individuals and organizations exercising their legal options. He further highlighted that NCLAT's next steps will be closely watched, particularly regarding the admission of the pleas.

According to analysts, the merger will consolidate over 70 TV channels, two video streaming services (Zee5 and SonyLiv), and two film studios (Zee Studios and Sony Pictures Films India). Sony is also injecting $1.5 billion in cash and will have representation on the merged entity's board as per the existing merger scheme. This arrangement will indirectly give Sony nearly 51% ownership of the merged entity, while Zee promoters will hold 3.99%, and other shareholders will hold 45.15%.