Sony-G Entertainment merger not easy : Promoters' stake in Zee Entertainment is only 4.7%, Invesco, which holds 18% stake in the company, may fight a legal battle

Zee Entertainment and Sony Pictures have announced the merger. Three months have been fixed for the necessary process related to the merger. But this merger is not easy. In fact, 'Invesco', a company that has a stake in Zee Entertainment, may hinder the merger.

Promoters have a major role

Promoters' stake plays an important role in any merger. In such a situation, it is rarely seen that such an agreement can be done when the promoters hold only 4.77% stake. On the other hand, Invesco, which holds an 18% stake in Zee Entertainment, is preparing to fight a legal battle.

Invesco raised the issue of governance

Invesco was the investor that led to the controversy in Zee Entertainment. In fact, Invesco believed that the company's corporate governance was weak. Invesco also demanded the removal of two independent directors and MD Puneet Goenka in Zee Entertainment. Two independent directors resigned, but MD Puneet Goenka refused to step down. But, before this matter went ahead, Zee Entertainment announced the merger with Sony.

Foreign investors hold a 67.72% stake in
Zee Entertainment, promoters hold 4.77% while fund houses and other investors hold 95.23%. Of these, mutual funds hold 3.77%, foreign investors hold 67.72% and LIC holds 4.89%. According to sources, Invesco, being a global asset management company, may woo foreign investors. In such a situation, the screw in the deal can get stuck.
In fact, Invesco wants a return of 30-40% on its investment. He has invested Rs 400 per share in Zee Entertainment. She will be ready to sell her stake only at Rs 500-550 per share for the expected returns.

The partnership was tried even two years ago

By the way, Zee Entertainment tried a similar partnership with Sony two years ago. But then it didn't work out. This time Zee Entertainment has accepted all the conditions for making Sony a partner. These include the condition that after the merger, Puneet Goenka will continue as the MD of Zee Entertainment for 5 years. Important sections like sales and distribution will be with Zee Entertainment.

Sony will have a 52.93% stake after the merger

Under the agreement, Zee Entertainment and Sony India will merge. The promoters of Sony India will infuse capital into the company. Zee Entertainment's shareholders will hold 47.07% in the merged company. While Sony Pictures Network's share will be 52.93%. Sony Group will have the right to nominate a majority director in the merged company.

11,605 crore investment

After this merger, Sony Pictures Entertainment will invest Rs 11,605 crore. The merger agreement also provides that the promoter family will have complete freedom to increase their stake in the company to 20% from the current 4.7%.

Invesco did the deal in July

In July 2019, Invesco entered into a deal with the promoters of Zee Entertainment to buy an 11% stake in the company. The deal was done for Rs 4,224 crore at Rs 400 per share. According to sources, it was only after Invesco's rebellion that Zee Group founder Subhash Chandra got in touch with Sony.