Zee Entertainment's merger with Sony Pictures Networks India (SPNI) comes at a time when Zee's largest investors had raised corporate governance concerns in the company and had also asked for the ouster of MD and CEO Punit Goenka.
The two large investors of Zee, Invesco Developing Markets Fund and OFI Global China Fund LLC, which together hold 17.88 percent of the total paid-up share capital of the company, had sought a special meeting of investors on September 11 regarding corporate governance concerns.
According to analyst Karan Taurani, senior Vice-President - Elara Capital, corporate governance overhang will fade away with SPNI having the controlling stake and this will also enable multiple re-rating for the company.
Following the proposed merger, SPNI shareholders will hold a 52.93 percent stake in the combined entity and Zee shareholders will own a 47.07 percent stake.
Punit Goenka will continue to be the managing director and CEO of the merged entity.
"In terms of management, Punit has the best capabilities to run the broadcasting business. They will need to reinvent their digital offerings over a period of time to drive further re-rating," Taurani added.
However, the extraordinary general meeting (EGM) which Invesco sought on September 11 would be key for the merger as the key shareholders would not only vote on Invesco's agenda but also take note of the coming together of Zee and Sony.
While the EGM could be the deciding factor, Taurani noted that the merger meant consolidation which is positive especially in times where growth rates in the TV industry including advertising and subscription revenue have dropped due to shift to digital and uncertainty towards NTO 2.0.
"Consolidation is a big respite in itself as it will lead to both players capitalising on each other's strengths and compete with the market leader Star & Disney India," he added.
Even Amit Tandon, founder and MD - IIAS, an advisory firm in an interview to a news channel said that merger is good for both the players because the industry is going through metamorphosis at this stage and a larger entity with deeper pockets is a welcome development for the industry.
Vivek Menon, Co-founder of NV Capital, media & entertainment financing group, said, "ZEE would have access to Sony's international catalog to exploit and monetise. The corporate governance overhang of ZEE Entertainment should also fade away with this merger and enhance investor confidence. The combined entity will be in a superior position to compete with Disney more effectively both on the distribution and advertising side."
Taurani pointed out that there will be less overlap and more synergies.
"There is a big opportunity in terms of synergies as Sony is doing well in sports, mainstream GEC whereas Zee has a strong recall on regional genres, which is less or absent for Sony. Both have a very strong movie catalogue which can be used for OTT and TV offering," he added.
Even on the digital front, both companies have different offerings.
"Sony is more into sports and mainstream shows like Scam 1992, whereas Zee is into regional web series. Hence, the content strategy can augur well to create a platform which has all of its offerings. They may emerge as the second largest homegrown OTT after Disney+(Hotstar) in India," added Taurani.
While ZEE5 has around four to five million paid users, Sony LIV has around 6.8 million subscribers, taking the total to around 12 million paid subscribers.
As for Disney+Hotstar, the platform till June, 2021 had 35.1 million subscribers which will go up to 46 million by end of this year.
While the competition is tough in the OTT space, when it comes to TV the merger will spell good news in terms of advertising.
Taurani noted that Zee had fared better versus industry average on the ad growth front.
In its annual report, Zee said that over 3,000 brands had connected with their consumers through their network in India.
In the Q1 FY22, while the domestic ad revenues were lower by 22.7 percent for Zee, the impact on ad revenues was lower as compared to Q1FY21 when the decline was 66.1 percent year-on-year.
"Both entities together will have a better reach towards a larger number of advertisers," he added.
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