NCLAT Declines Stay Order on Zee-Sony Mega Merger Despite Challenges; Stalemate Persists Over Punit Goenka’s CEO Appointment in Zee-Sony Merger

The National Company Law Appellate Tribunal (NCLAT) in India has declined to issue a stay order on the Zee Entertainment Enterprises Limited (ZEEL) and Sony merger, which aims to create a $10 billion media giant.

Following this news, Zee’s shares experienced an increase, reaching a day’s high of Rs 286.50. On the BSE Sensex, it was trading 1.6% higher, while the Sensex itself continued its record rally, being up 0.7% at 70,980.

Despite refusing to issue a stay order, NCLAT has issued a notice in response to a plea challenging the mega merger and has scheduled the case for a hearing on January 8. 

Earlier, creditors IDBI Bank and Axis Finance had filed pleas opposing the merger of Zee Entertainment Enterprise with Culver Max Entertainment, formerly Sony Pictures Networks India. 

Their challenge was directed at the NCLT’s order on August 10, 2023, approving the merger. Financial institutions like IDBI Trusteeship, IDBI Bank, Axis Finance, JC Flowers Asset Reconstruction Co, and Imax Corp had requested the NCLT to reject the merger, but their requests were denied.

In response, IDBI and Axis Finance contested the decision by appealing to the NCLAT. During the last hearing on October 31, the NCLAT transferred the cases to a panel chaired by Justice (retd) Ashok Bhushan.

In objections raised during the Zee-Sony merger scheme in the NCLT, various operational and financial creditors had expressed their concerns. However, the company managed to reach a settlement with IDBI Bank, IndusInd Bank, and the Indian Performing Rights Society (IPRS).

In August 2023, the Bombay High Court dismissed Axis Finance’s application to involve Zee, Essel Mauritius, and Sony in its commercial summary suit against ZEEL promoter Subhash Chandra Goenka and others; the suit aimed to recover Rs 146 crore from Subhash Chandra Goenka.

Sony and ZEEL had signed definitive agreements to merge in December 2021. 

According to the deal, Sony would indirectly hold a majority of 50.86% in the combined company, ZEEL founders would have a 3.99% stake, and other ZEEL shareholders would hold 45.15%. 

Although the merger was anticipated to conclude in 8-10 months, it is still pending two years later due to cases filed by financial institutions against ZEEL and a Sebi order against the company’s promoters.

Upon completion, the merger is expected to establish a multibillion-dollar media powerhouse with a prominent position in TV, OTT, and content creation; the FY23 financials indicate that the combined revenue of ZEEL and Sony was nearly Rs 15,000 crore.

Stalemate Persists Over Punit Goenka’s CEO Appointment in Zee-Sony Merger

The deadlock surrounding the appointment of Punit Goenka as the CEO of the proposed Zee-Sony merged entity remains unresolved, as both parties stand firm in their positions. 

Despite Goenka’s insistence that the merger can only proceed with him leading the company, Sony is advocating for Goenka to assume a non-executive role.

As the December 21 deadline for the merger looms, discussions between the two media giants have reached an impasse.

Post-merger, there is a possibility that Goenka may retain a position on the board in a non-executive capacity. 

However, Sony appears hesitant about having him oversee day-to-day operations, fearing that it might compromise the spirit of the merger and result in the continued dominance of Zee’s influence. 

A highly placed source revealed that Sony aims to diminish Goenka’s role in the merged entity and may consider withdrawing from the merger if he does not step back.

On the other hand, for Zee, having Punit Goenka as the leader of the Zee-Sony merged entity has been a fundamental aspect of the merger agreement. 

Yet, recent challenges faced by Goenka with the Securities and Exchange Board of India (SEBI) have prompted Sony to reconsider its stance. 

Sony, set to be the majority shareholder with a 50.86% stake in the merged entity, is contemplating the appointment of an executive from its ranks, potentially NP Singh, the current CEO of Sony Pictures Networks India.

This development occurs concurrently with another major media consolidation in progress, as Reliance and Disney prepare a term sheet for merging their operations in India. 

A source remarked, “The ball is in Sony’s court. Goenka has communicated that the merger should proceed as per the original agreement with him at the helm of the merged firm.”

Earlier, Goenka assured shareholders that the merger would proceed “with or without him” after SEBI barred him from key managerial positions in Zee Group companies in August. 

The Securities Appellate Tribunal later overturned the SEBI order, allowing Goenka to continue as the CEO of Zee while investigations by SEBI into fund siphoning and false loan recovery continue.

The Last Bit, The uncertainties surrounding Punit Goenka’s role as the CEO in the Zee-Sony merged entity cast a shadow over the imminent merger deadline. 

With Sony advocating for Goenka to assume a non-executive role and Goenka steadfast in his position as the leader, the fate of this media conglomerate hangs in the balance. 

The journey toward the Zee-Sony mega merger faces a complex legal terrain, with the NCLAT declining a stay order despite challenges from creditors. 

The upcoming hearing on January 8 and the ongoing legal battles emphasise the intricacies and uncertainties surrounding this significant development in the media industry. 

Once finalized, the merger promises to reshape the landscape of the media sector, creating a multibillion-dollar entity with a stronghold in TV, OTT, and content creation. 

However, as financial institutions contest the merger and regulatory orders add complexity, the path to the creation of this media powerhouse remains laden with legal intricacies and delays.