The month of September 2021 saw a historic fusion!! The Zee-Sony merger. All were gearing up for a blockbuster. But the deal has run into troubled waters. Intrigued? Scroll through.…
In the month of September 2021, the American multinational mass media conglomerate, Sony Pictures Entertainment Inc. and an Indian media company, Zee Entertainment Enterprises, with its H Q in Mumbai have signed a non-binding term sheet for merger of their operations. The merged company will be a public listed company headed by Punit Goenka. The non-binding agreement would combine the business verticals of both the companies such as production, operations, networks, program libraries and digital assets.
As per the understanding, the new entity will be publicly listed and will have Punit Goenka, the Zee Entertainment’s boss at the helm. The non-binding agreement was to combine the business verticals of both the companies such as production, operations, networks, program libraries and digital assets.
The combined entity will have an equity sharing of 53 % by Sony and 47% by Zee Entertainment. With over 25 % viewership and $ 2 billion revenues annually, the entity is expected to lead the digital future. Further the Zee promoter’s family who hold 4 % stake can in future increase it by five folds to 20 %. It is expected that the merged entity will have the capacity and ability to bid the broadcasting rights in various areas such as sports and other entertainment programs.
Motives for Merger
Companies merge for various reasons and some of the prominent reasons are as follows:
- Value Creation- The merged entity can create value through increased revenue from expansion of the market, utilizing R & D and production facilities, improving cost structure through economies of scale and combined use of technology.
- Diversification- The merged entity can enter into new markets (Market extension), offer new products (Product extension), services, risk diversification etc.
- Acquisition of assets- The merged entity can acquire new assets due to their financial strength which would not be possible otherwise. Further the merged company can acquire the assets of the other entity such as technology, human resources etc for synergy purpose.
- Increase in financial capacity- The merged entity will have a higher financial capacity to enable it to deploy in further business development processes.
- Tax purpose- If one of the merged entity has substantial carry forward tax losses and the other with good profits, the total tax liability of the merged company will be much lower
- Happy employees- There are enough evidences to prove that there is a direct corelation of the compensation of the employees with the size of a company and the larger merged entity will make the employees happy through higher compensation.
Sony- Zee merger – The Synergy
The merged entity will enjoy the synergies which include:
- The combined entity can have a large spectrum of over 75 channels.
- in negotiating the ad deals with clients.
- Can compete with the top companies in the media space such as Amazon Prime, Netflix and Disney.
- With considerable combined revenue on par with Star India revenues.
- The merged entity can boast of strong movie and music business.
Synergy in the OTT
- Media giants such as Netflix, Amazon Prime and Disney will face competition from the Sony- Zee combo in OTT segment.
- The merged entity along with ALT Balaji (Indian subscription based video on demand platform) may be in the third place in this segment as per a report by RBSA advisors, an independent advisory firm.
The latest Position
At the time of writing this blog ( 22nd October 2021) the merger is yet to be completed due to the largest shareholder with 18 % share in Zee entertainment – Invesco, had sent a requisition notice to the company’s for conducting EGM of the shareholders, mainly for seeking removal of Goenka and two other directors from the board. Punit Goenka, MD and CEO of Zee Entertainment has expressed his disappointment at the turn of events.
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Can you think an innovative but simple idea to save the Sony-Zee deal?
In spite of the synergies that the merged entity enjoys, why do some M & A end up in failure?
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1. Sony Pictures and Zee Entertainment sign a non-binding term sheet
2. Sony, Zee to merge into blockbuster entity
3. Explained: Zee Entertainment’s merger with Sony Pictures Networks, and contours of the deal
4.Motives for merger-Corporate finance Institute blog
5. How benefits of scale will make ZEE-Sony a TV & digital powerhouse
6. The 8 Biggest M&A Failures of All Time