The highly anticipated $10 billion Zee-Sony merger is fast moving towards finalisation following approval from the National Company Law Tribunal (NCLT). This merger is poised to establish the new entity as a dominant player in India’s television industry and is expected to capture over 25 percent of the market share. Yet, a significant obstacle looms in terms of leadership.
“While one cannot predict the exact time to reach closure, it may take anywhere between two to three months to close,” said Ritika Nayyar, partner (mergers and structuring) at law firm Singhania & Co.
She delves into the merger’s scope, challenges, and the path forward.
Excerpts
Given the current antitrust landscape around Zee, what are the primary concerns or challenges that the Zee-Sony merger might face now? How can these be addressed?
This $10-bn merger between Zee and Sony is the biggest that we have seen in the media industry till now. It has been approved by the NCLT Mumbai. With this merger, the new entity has the potential to be the second largest player in the Indian television industry, expecting a combined market share of 27 percent.
Challenges may arise due to uncertainty on the leadership of the merged entity which may directly affect its operations. However, even from the time restraining orders were passed by SEBI and Punit Goenka stepped down, the operations of ZEEL had been carried out by an interim committee looking after the day-to-day functioning of the business.
The efficiency is apparent from the fact that this merger finally sailed through and got the nod. We anticipate that a similar committee would be set up initially in the new entity till the time the new CEO of the merged entity is appointed.
SEBI has said that the question whether Punit Goenka will head the new merged entity or not, should not stop the merger. How big a problem is that for now?
Punit Goenka has vast industry experience at ZEEL due to which he has an integral role in the functioning of the new merged entity and, therefore, he was supposed to lead the new entity as the CEO and spearhead the business, being the main brainchild behind the hows and whats of the consolidation of synergies of both Zee and Sony business, for both optimising costs and accelerating revenues. As we hear, he is approaching the Securities Appellate Tribunal against the SEBI order which barred him from holding key managerial positions at Zee and its group companies, seeking a stay on the same since the investigation by SEBI is expected to take eight long months.
Also, considering that Sony had the best interests in having the merger go through despite sensitive circumstances concerning the main leadership role, the management at Sony and ZEEL definitely have some terms agreed on the alternate leadership plan till Punit Goenka is cleared of all allegations and he can be restored to the CEO position in the merged entity. The approval has of course gone through despite Goenka’s absence.
How much time will the merger take to reach closure? What is the status as of now?
The approval for the merger was accorded on 10th Aug 2023 by the NCLT. Though one cannot predict the exact time to reach closure, it may take anywhere between two to three months, factoring in various post-approval compliances with the regulators such as ROC and SEBI and intimation to various statutory authorities such as Income Tax, GST and so on. Since the order of the NCLT is supposed to be filed with the ROC within 30 days of receipt of the order, we believe this is currently in process.
From a legal standpoint, what steps need to be taken to address workforce and employee-related matters during and after the merger?
The NCLT approves a Scheme of Amalgamation which, among other things, provides for various rights, responsibilities, and benefits of the employees of the merging entities in the new merged entity and while approving the same also considers how well their interests are protected. Interests of employees in India are primarily protected under the Industrial Disputes Act.
In a merger, usually all employees are transferred to the new merged entity. There could be employees related restructuring as to their designation, roles, remuneration, benefits and so on. A due diligence of human resources before the merger may be helpful in understanding any practical challenges (to be handled) should the proposed merger go ahead.
However, a bigger challenge lies in the post-merger integration of the employees. It is a major task to get employees of two different organisations to get together as one and work towards the growth of the new entity. So, the start has to be good to ensure longevity. Integrating the cultures of two different organisations to have them work effectively is imperative.
It may be helpful in drawing out a post-merger implementation plan specifically for employees, the planning of which should start early on, preferably as soon as the deal is finalised. For seamless onboarding of new employees, preparation of orientation packs, new employment contracts, mailers, single point of contact and a handbook on company’s HR policies are helpful.
Basically, it must be ensured that employees in the new entity will have at least the same or more favourable terms of employment and their statutory rights are complied with.
How are the investor sentiments and what upfront synergies are expected from the merger?
We have seen a jump in stocks of ZEEL after the merger got the nod of the NCLT, in a sense implying that investors are looking at it positively.
In terms of synergies, we are looking at a consolidated larger platform and diverse content library, growth in viewership, accelerated revenues, optimisation of costs and so on. If implemented well, this new entity has the potential to become a market leader.