THE GREAT MERGER IN THE INDIAN TELEVISION INDUSTRY - Palak Gupta

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The merger of the homegrown brand Zee Entertainment Enterprises (ZEEL) and Japanese conglomerate Sony’s Indian arm Sony Pictures Networks India (SPNI) is an iconic moment for the Indian Television Industry. It is believed that this merged entity will be India's largest entertainment broadcast network that may do very well in different business verticals. Through this article, we will explore whether this merger will turn out to be profitable considering the risks involved.

Background
SPNI and Zee Entertainment announced a merger on 22 September 2021, with a 90-day period to conduct due diligence for the process and the process was to come to an end on 21 December. SPNI shareholders to enjoy 52.93% stake while Zee will acquire 47.07%. Additionally, Punit Goenka will continue to be the Managing Director and CEO of the firm. The term sheet also includes a clause that Zee’s promoter family is free to increase its shareholding from the current 4 percent to up to 20 percent. 

Invesco’s open letter
Great mergers follow greater controversies. Following the merger, Zee got entangled in a legal battle with its greater shareholder Invesco. which holds a 17.88 percent stake in Zee along with OFI Global China Fund. Invesco, in an open letter, had raised issues against the stake enhancement of the promoter family. Furthermore, the matter was taken to court when Zee refused to call an EGM, as demanded by Invesco.
This could have led to a two-fold impact-Invesco has an ability to oppose the scheme or they might request a stay on the merger process.

Benefits from the merger
While ZEEL has a wider network of 49 channels and a 17.7% market share than SPNI which holds a market share of 10% with 26 channels, this deal is going to be a win-win for both companies where they both will complement each other’s strength, thus filling the grey areas. ZEEL has a strong presence in fictional and regional content while SPNI is the second-biggest sports broadcasting company in India. This will help them tap new audiences for their channels, thus increasing the existing market share.
This will also lead to both revenues as well as cost synergies in the Entertainment business. Zee is one of the largest players in the Indian TV industry and is going well despite the digital threat. Content synergies will also be effective as we have seen ZEEL continuously investing in OTT and music platforms while SPIN has a strong distribution channel for international movies in India.
With the infusion of additional capital in excess of $1 billion that will be used for investments in content, technology, and distribution, they could compete aggressively with Amazon and Netflix.
Though there are many risks involved in such a deal, we have to weigh the risk-reward factors to come to a conclusion if such a deal is worth the risk or not and I believe that it is.
India has a locally developed media industry, unlike many other countries. So, it's a compelling market for further investment and for the merged entity to become larger.

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