Sony expresses concerns over Punit Goenka as CEO despite legal relief

In light of recent media reports, Sony has communicated its reservations about Punit Goenka taking the helm of the combined Zee-Sony entity following their merger. This development comes amidst the ongoing SEBI investigation, which will persist despite the interim relief granted by the Securities Appellate Tribunal (SAT).

Elara Capital's earlier analysis outlined two possible scenarios: the first being a merger process expedited with clarity over Punit Goenka's position as CEO, and the second indicating Sony's reluctance to appoint him as CEO while an investigation is underway. The current stance taken by Sony aligns with the latter scenario, suggesting that they may not favour having a CEO who is under investigation.

From a legal perspective, there is no immediate challenge to appointing Punit as CEO post the relief granted by SAT, as confirmed by primary consultations with legal experts, said Karan Taurani, senior analyst at Elara Capital.

Nevertheless, as Sony is likely to hold the majority stake in the merger, they may opt to designate an alternative candidate due to the ongoing investigation. In this context, Taurani says, it is highly probable that Sony may select an internal candidate to lead the merged entity.

It is worth noting that even if a new CEO is appointed, the impact on Zee is expected to be minimal. The appointment of a new CEO would require shareholder and board approval, and as previously indicated, Elara Capital does not anticipate significant delays beyond a certain point in the merger process. It is expected that the entire merger process will conclude within the next 8-12 weeks, as Sony may not be inclined to prolong the timeline. Therefore, says Taurani, any potential delay in the merger due to this development is not anticipated.

In the event of Sony acquiring Zee without Punit Goenka as CEO, a longer transition period in terms of business synergies may be expected, given the potential introduction of new management at Zee.

However, it is important to emphasize that the business synergies, commitment to superior corporate governance practices, and the scale in the OTT sector remain the key drivers for the merged entity. These factors are expected to contribute to superior valuation multiples for the combined company.

Elara Capital maintains a positive outlook on Zee, driven by the upcoming merger, which can proceed with or without Punit Goenka as CEO. Further clarity on this matter is expected to emerge in the coming weeks.