Following SEBI’s order, ZEE-Sony merger deal under the scanner

Following the interim order by the Securities and Exchange Board of India (SEBI), imposing a ban on ZEE promoters Subhash Chandra and Punit Goenka, preventing them from holding directorial and key managerial roles due to allegations of funds siphoning, there have been a lot of speculations in the media regarding the fate of the ZEE-Sony mega merger deal.

Speculations are rife as to whether there will be a delay in the ZEE-Sony merger or even whether it could be called off. Adgully reached out to both ZEE and Sony for an official comment on this issue, however, both refrained from commenting on the same.

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SEBI bars Subhash Chandra, Punit Goenka from holding director’s position in listed Cos

As reported earlier, Zee Entertainment has been given 21 days to file their objections, and the SEBI order will be presented to the company’s board within seven days. It is learnt that ZEE intends to appeal the SEBI order with the Securities Appellate Tribunal (SAT) to challenge the decision.

Following the filing of the appeal with SAT, said Elara Capital senior analyst Karan Taurani, a Board Meeting will be held, and SAT is expected to deliver a decision within 24 to 48 hours. If SAT grants a stay against the SEBI order, the merger process is likely to be significantly delayed. This delay may prompt Sony to reconsider its participation in the merger if Punit Goenka does not step down from his position as a Key Management Person (KMP). In the event that SAT dismisses Zee’s plea, Sony will proceed with the merger, appointing a new CEO. Changing the management within the merger scheme will not require exchange approval, only the Ministry of Information and Broadcasting (MIB) approval, which could take a few weeks.

Taurani further said that regardless of the outcome, there will be a definite delay in the merger process. Previously, the process was expected to proceed swiftly after the National Company Law Appellate Tribunal (NCLAT) dismissed the National Company Law Tribunal's (NCLT) appeal to reassess exchange approval and instructed the NCLT to hear Zee’s arguments.

As per the current scheme of arrangement, Punit Goenka is slated to be the Managing Director/ CEO of the merged company. However, in the event that he is unable to hold a key managerial position, Sony will search for a new CEO internally or externally.

The NCLT hearing for the merger is scheduled for June 16, 2023, which will also provide clarity on the exchange reassessment issue. The likelihood of exchange reassessment not taking place is high.

Taurani believes that it is unlikely that the merger will be called off, providing long-term relief, as Sony may proceed with the merger even if Punit Goenka is not a key management person of the merged company.

Meanwhile, in an official statement issued, R Gopalan, Chairman, Zee Entertainment Enterprises, stated, “The Board of Directors of Zee Entertainment Enterprises Ltd. (ZEEL) has noted the interim ex-parte order issued by the Securities and Exchange Board of India (SEBI), with respect to Dr Subhash Chandra and Mr Punit Goenka.”

He further added that the Board is currently in the process of reviewing the detailed order, and appropriate legal advice is being sought in order to take the next steps as required.