Zee climbs 1.5 pc after Goenka says merger with Sony on track

The merger between Zee Entertainment and the Indian unit of Japan’s Sony will go through, whether or not he is the CEO of the merged company, Punit Goenka said.

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Shares of Zee Entertainment rose 1.52 percent to Rs 183.10 in morning trade on June 22 after the company’s CEO and MD Punit Goenka exuded confidence that its proposed merger with Sony will go through.

The merger between Zee Entertainment and the Indian unit of Japan’s Sony will go through, whether or not he is the CEO of the merged company, Punit Goenka told the Economic Times in an interview.

The Securities and Exchange Board of India (SEBI) had last week banned Zee Chairman Subhash Chandra and CEO Goenka from holding any directorial or key managerial position for one year for allegedly diverting company funds to the group’s related entities.

Chandra and Goenka have filed a plea against the Sebi order in the Securities Appellate Tribunal (SAT). The matter has been posted for hearing on June 26.

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“The Zee-Sony merger holds immense significance, regardless of my position as CEO. The resulting entity will be under Sony’s control, and they have chosen to retain me as a promoter, MD, and CEO,” Goenka said.

In a note, Elara Capital said there is “high likelihood” of the merger going through. Even if Goenka does not get relief from SAT, a Sony representative can be appointed as CEO of the merged entity.

Also Read: Sony-Zee merger to go through, says Punit Goenka

Elara added that Sony was aware of corporate governance issues through due diligence, and the merger is between two entities and individual change won’t change things much.

“Sony /Zee may need shareholder/board approval for change in CEO in a worst case scenario; the above should be easier and faster. NCLT approval too will move faster once the outcome of SAT order is known,” it said.

Elara has maintained its positive stance on Zee and expects big re-rating on valuation multiples.

Earlier on Wednesday, Sony Pictures Entertainment said it has taken the Sebi order banning Zee Entertainment founder and chief executive officer from holding board positions ‘seriously’ and will continue to monitor developments that may affect its deal with Zee.

This was Sony’s first comment post the Sebi ban against Subhash Chandra and Punit Goenka.

Legal experts note that as Goenka was supposed to be the MD and CEO of the merged entity, there could be a scenario where the two companies will have to amend the scheme and propose a new CEO and MD if the SEBI order is not overturned.

The Zee-Sony merger announced in 2021 was set to create a $10 billion TV enterprise, with Goenka becoming the merged entity’s managing director and CEO, but regulatory approvals are still pending.

Also Read: Zee’s fundamentals worsening on weak business, merger risks, says BofA

Meanwhile, BofA Securities, in a report on June 20, said the fundamentals of Zee Entertainment Enterprises are worsening due to “weak” business, “risks” to the upcoming merger with Sony Pictures Network India, and the investigation that has been launched by Sebi against its promoters.

“We expect Zee’s revenue growth to remain slow on back on a slower ad (lower spending/mix shift to digital) and subscription. Zee’s EBITDA margins have come down from 32 percent in FY19 to 14 percent in FY23 led by content/OTT investments,” BofA added.

Zee shares are down 24 percent on YTD basis.

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