A week is a long time

Just a week before the merger deal was announced, Invesco and OFI China Fund had lobbied for the removal of Punit Goenka from the post of MD and CEO of Zee Entertainment. Their view was that for a 3.44% stake, the family was getting an inordinate say in the company affairs. In just one week, the merger deal with Sony was signed with Punit Goenka appointed as the CEO of the merged entity for a period of five years. How will the deal help? 

It is a win-win deal

On the face of it, this merger does look like a win-win deal for Zee and Sony. Under the terms of the deal, Zee gets the much-needed cash for expansion while Sony gets access to the very rich regional content offerings of Zee. The big challenge for the broadcasting space is to handle OTTs. While Sony is strong in sports and general entertainment, Zee is strong on regional content. This combined library helps them take on the challenge of Disney Hotstar effectively in the OTT space. It is a positive step in consolidation of the media sector and a clear move towards new media. 

Subhash Chandra scores

In a way, the man who really scored the brownie points in the entire deal was the original promoter of Zee. The host of governance issues had resulted in the family’s stake in Zee reducing to 3.44% and this was slated to further reduce to 2% post the merger dilution. Now Sony has agreed to compensate the family with an additional 2% as part of the non-compete clause. Thus, Subhash Chandra family will now have 4% in the merged entity with the option to raise the stake to 20% over a period based on the milestones. This ensures that the family retains ownership in the company and also Chandra’s son, Punit Goenka, continues as the MD and CEO. 

Positive for business overall

While it is true that the Zee promoters may have stretched themselves on the infrastructure front, that is the kind of mistakes that do happen. Making the promoters lose control of the company was always unfair. The whole idea of the control passing from the promoters to portfolio investors or private equity investors is never a very good idea. This deal is a major positive in the sense that the original promoter gets to retain a stake in the company with the option of eventual control. It is a fact that it was Subhash Chandra who ushered in the era of modern private sector media ownership. From that perspective, this deal is a really positive development!