Zee-Sony merger may have a big backer in LIC

Life Insurance Corp. of India (LIC), the largest local shareholder of Zee Entertainment Enterprises Ltd, favours the proposed merger of the broadcaster with Sony Pictures Networks India, three people familiar with the insurer’s decision said.

The insurer’s vote is crucial for the Zee-Sony merger deal because LIC owns nearly 5% of Zee. If LIC does endorse the Zee-Sony merger, it may also influence how Zee’s public shareholders vote on the proposal.

“LIC’s primary objective is to create value for policyholders. Corporate governance is indeed important, but as a shareholder in Zee Entertainment, LIC is aware of the state of affairs at Zee. LIC feels that the deal with Sony will create value for all shareholders, which is evident from the stock’s behaviour,” said one of the three people on condition of anonymity.

Zee’s stock price has gained sharply after the announcement of the merger proposal with Sony. On Tuesday, Zee was trading at ₹305.25 on BSE.

Emails sent to LIC and Zee did not elicit any response.

“Once the proposal comes up for shareholders’ voting, LIC will vote in favour of the deal. The synergy of the deal can’t be ignored. The investment committee of LIC will take the final decision, but internally, LIC has discussed the deal and is confident about the way the merger will benefit Zee,” the second person said, also declining to be named.

“The deal will ensure a sustained flow of cash to the combined entity from Sony Pictures’ parent. Considering the diversity of the content to be brought on TV channels and the OTT platforms, the combined entity’s ability to enhance margins will be higher. LIC has considered these factors before internally favouring the deal,” said the second person.

Invesco, Zee’s single-largest shareholder with a 17.88% stake, has called a special shareholders’ meeting to vote on overhauling Zee’s board and oust its managing director Punit Goenka. Zee has, however, challenged the legality of the move in local courts.

If Zee accepts Invesco’s demand, apart from a majority shareholder approval, a clearance from the ministry of information and broadcasting will also be required for naming new independent directors on the board of Zee.

At least 75% of shareholders have to vote for the Zee-Sony merger to approve the transaction. Sony Pictures has offered to merge its business with Zee through a share swap, in which Zee’s shares will be priced at ₹250 apiece. Parent Sony Corp. would then infuse $1.58 billion into the merged entity.

“With the combined TV portfolio (of Zee and Sony) spreading across all genres, it becomes a must-carry network. The digital platform will get a big boost with the deep content library and funnel. With the cash coming in (from Sony), it will give a lot of firepower to the combined entity to bid for upcoming sports and other content IPs. There is a huge scope of synergy benefits (both on the revenue and cost side). Zee’s regional footprint and Sony’s sports rights is a major point of content synergy. Commercially, both are profitable. With synergistic profits coming in, the blended margins will improve,” the third person said, requesting anonymity.

On 22 September, Zee and Sony entered a non-binding term sheet that provides an exclusive period of 90 days, during which Zee and Sony Pictures will conduct mutual diligence and finalize definitive agreements to combine their networks, digital assets, production operations and programme libraries. Livemint