Zee-Sony merger: A look at the steps to bring combined entity into existence

The merger between Zee Entertainment and Sony Pictures Networks India  (SPNI) that was announced on December 22 will go through multiple stages of regulatory and shareholder approvals for the combined entity to come into existence.

Punit Goenka, who will be leading the merged entity, estimates eight to 10 months for the merger process to complete. Here’s a look at the process ahead.

Which regulatory authorities Zee-Sony will have to approach?

The regulatory authorities include the National Company Law Tribunal (NCLT), Competition Commission of India (CCI), Securities and Exchange Board of India (SEBI), stock exchanges including BSE and National Stock Exchange and the ministry of information and broadcasting (MIB).

What will each authority look at for the merger?

Gaurav Mistry, Associate Partner at law firm DSK Legal, said that Zee and Sony will have to file a detailed notice with the CCI because their coming together will have a bearing on market dominance.

The CCI can direct the parties to the combination/merger to file a notice in Form II to determine whether the combination is likely to cause or has caused an appreciable adverse effect on competition within the relevant market.

Another step is filing an application with the NCLT for holding the creditor/shareholder meeting, said Nishtha Jaising, associate, Pioneer Legal, a law firm.

Simultaneously, the companies will have to go to the MIB because changes proposed pursuant to the scheme of merger will require prior MIB approval, said Mistry.

He added that since Zee is a listed company, it will need approvals from the stock exchanges and SEBI.

Approval from lenders will also be required as as generally the documentation with lenders contain specific provisions which mandate the requirement of a prior written consent in case of various corporate actions and, typically, a merger will require lenders' prior consent. The NCLT may also call for the lenders meet for their approval on the scheme, noted Mistry.

How much time will regulatory approvals take?

Mistry estimates around six months for regulatory approvals for the merger.

However, he added that "for National Company Law Tribunal to approve the merger, it may take at least 10-12 months because of the backlog that there is at NCLT which keeps growing."

The MIB is also expected to give its approval in a timeframe similar to the CCI’s.

What will be the process for shareholder approval?

Any shareholders’ meeting held for approval of a scheme follows a very specific agenda and operates within the confines of the Companies Act and Rules. The shareholders will be made privy to the details of the board meeting approving the merger, which in Zee’s case, has been convened on December 21, 2021, and only those resolutions as already approved by the board in relation to the merger will be presented for shareholder approval,” explained Pioneer Legal’s Jaising.

Milind Jha, partner, Link Legal, noted that the shareholders’ meeting will be called at the instance of the NCLT and that the merger scheme would require a special resolution.

What percentage of vote of shareholders will be required for merger?

“For the Zee-Sony merger to gain shareholder approval, a three-fourths majority of shareholders will be required.” said Jaising.

Mistry said that 75 percent in value of shareholders present and voting in favour of the merger will be required for the scheme to go through. “So there is a lot of dependency on institutional investors, foreign portfolio investors, insurance companies and mutual funds,” he said.

Will the Invesco issue be a concern for the Zee-Sony merger?

Investment management company Invesco, which holds a 17.88 percent stake in Zee along with OFI Global China Fund, has taken the media company to court for not calling an extraordinary general meeting (EGM). Invesco had called for an EGM on September 11 for the ouster of Goenka and to rejig the board.

“Zee will have to make the tribunal (NCLT) as well as the shareholders, other than Invesco and OFI, cognizant of the particulars of the dispute at the time the notice of the shareholders meeting is sent. So it may certainly be a point of materiality in relation to the merger,” said Jaising.

Mistry added that Invesco may have the ability to oppose the scheme (merger) because under the Companies Act there is a concept of objecting shareholders i.e., shareholders holding 10 percent or more. "Since, Invesco collectively holds 17 odd percent they can choose to oppose the scheme under the Act, and the NCLT will examine the issue," he said.

A separate process can also be initiated by Invesco wherein they may request for a stay on the merger process pending the final outcome of their ongoing dispute, Mistry said.

“Invesco has approached the Bombay High Court division bench against the order passed by the Bombay HC in respect of its requisition meeting. If the bench upholds the previous order (by the Bombay HC) then Invesco will have a right to approach the Supreme Court of India and this could potentially delay the merger process," added Mistry.

Can the merger scheme be put to vote without holding the EGM called by Invesco?

“The Bombay High Court has stayed Invesco’s demand for an EGM and the hearings on the same are being fought out at different stages. In such a scenario, the (merger) scheme can certainly proceed towards gathering shareholder approval as long as the particulars of the dispute with Invesco are satisfactorily disclosed in the notice,” said Jaising.

Goenka will lead the united entity. Will that be a hurdle for the merger?

“The merger will necessarily mandate a change in the board of directors of the merged entity, and with Sony in majority, it may allay Invesco’s concerns to an extent,” said Jaising.

Mistry said that Zee may provide for a holistic resolution for approving the scheme.

“Unless there is a separate resolution proposed for the appointment of Chairman/MD along with the resolution for approving the scheme, Invesco will not be able to pick and choose," he added.