SAT’s decision clears path for smooth Zee-Sony merger, easing legal hurdles

The tribunal’s decision to set aside Sebi’s order has come as a significant relief to Zee Entertainment, alleviating the company from the legal uncertainties that clouded its merger plans with Sony Pictures India.

By
  • Tasmayee Laha Roy,
| October 31, 2023 , 9:32 am
The NCLAT will be hearing a challenge to the Zee-Sony merger on May 17. (Source: Moneycontrol)
The NCLAT will be hearing a challenge to the Zee-Sony merger on May 17. (Source: Moneycontrol)

Another obstacle has been removed from the path of the Zee-Sony merger. What commenced in June has now been reversed after a five-month duration, with the Securities Appellate Tribunal (SAT) overturning the Securities and Exchange Board of India’s (SEBI) order. This order had initially barred Zee Entertainment’s CEO, Punit Goenka, from holding positions on the boards of listed companies for a year.

Legal experts expect that this development will expedite the seamless completion of the merger deal.

What does this order mean?

Sandeep Bajaj, Advocate, Supreme Court of India explained the order.

“The recent order from the Security Appellate Tribunal (SAT) has cleared the path for Punit Goenka to continue his role as the managing director and CEO of Zee, marking a significant milestone in the media and entertainment industry. This decision comes in the wake of the impending merger between Zee Entertainment and Culver Max Entertainment (Sony Pictures India), a merger that has been the talk of the town since its announcement in 2021,” he said.

Despite the merger gaining approval from regulators, legal hurdles, primarily centered around loan defaults by a Zee group entity, had caused delays.

“However, with the SAT’s ruling, Goenka can now spearhead one of the most substantial merged entities in the media and entertainment sector,”Bajaj added.

This merger is set to create a media powerhouse worth $10 billion.

The SAT’s order outlines Goenka’s willingness to cooperate fully in the investigation, indicating a commitment to transparency and compliance with the law.

“It’s worth noting that the observations made by SAT are preliminary and will not impact the ongoing investigation or be manipulated by any party involved. With this ruling, a seamless completion of the merger is anticipated,” Bajaj said.

How will it impact the Zee –Sony merger?

The tribunal’s decision to set aside Sebi’s order has come as a significant relief to Zee Entertainment, alleviating the company from the legal uncertainties that clouded its merger plans with Culver Max Entertainment (Sony Pictures India).

In fact an excerpt from the order also said that, “The fact that greater responsibility (if any) has come upon the appellant (Punit Goenka) pursuant to the merger, then all the more reason that the appellant should be allowed to continue rather than putting the merger to continue headless when 99.97 percent of the shareholders reposed faith in the appellant to continue as Managing Director of the merged entity.

This positive momentum not only signifies a financial rebound for the company but also proves to be positive for the Zee-Sony merger.

“The swift resolution of the regulatory hurdle indicates that the merger might proceed at an accelerated pace, minimizing the risk of further delays. However, it’s worth noting that the completion of the merger remains contingent on any potential legal proceedings or investigations that might arise in the future. Nonetheless, the SAT’s decision appears to pave the way for the merger’s eventual completion, instilling confidence in investors and stakeholders alike,” Bajaj explained.

Will there be any further roadblocks?

The merger deal announced in December 2021 has seen multiple roadblocks and the SEBI order in June was just one of them. While the deal had gotten all other regulatory clearances over time, the fact that Goenka was not allowed to hold any managerial position in any listed company was a setback which now seems to be out of the way.

According to Gaurav Mistry, partner at law firm DSK Legal, unless an appeal is preferred by SEBI against this order and a stay is granted in favour of SEBI, this SAT order will likely have a positive impact on the merger process as the MD appointment will go as planned under the scheme.

“It is also important to review the order text in detail to understand whether there are any softer issues or areas of concern as regards the appointment in the merged entity,” Mistry said.

Mistry also points out that it is imperative for the management of Sony and subsequently that of the merged entity to be comfortable with the appointment pending completion of the investigation and this may also have some bearing on the entire process.”

Initial response after the order

The swift resolution minimizes risks of further delays and SAT’s decision instilled confidence in investors, indicating a favorable trajectory for the merger’s completion.

Market response aligned with the optimism, as ZEE’s share price gained 1.5 percent following the SAT ruling.
“The findings of the SAT are also significant as the interim relief was granted on the basis the cooperation extended by Goenkas’ and clearly specifies that this relief will not influence the investigation in any manner. Resumption of office by Goenka will also help in speeding up the merger process, who was spearheading this transaction prior to his stepping down as CEO,” said Diviay Chadha, partner, Singhania & Co.

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