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Category: TDSAT

  • Zee receives NCLT approval for settlement approval with Sony India

    Zee receives NCLT approval for settlement approval with Sony India

    Mumbai: Zee Entertainment Enterprises (ZEEL) has received approval from the National Company Law Tribunal (NCLT) to withdraw its application and claims related to the arbitration process involving its merger with Sony Pictures Networks India. This development marks the conclusion of a nearly three-year legal dispute.

    In a statement released on Thursday, Zee confirmed that the NCLT has agreed to allow the withdrawal of the scheme and has recalled the order it had previously sanctioned on 10 August 2023. This order had granted approval for the merger between ZEEL, Bangla Entertainment Private Limited (BEPL), and Culver Max Entertainment (CME).

    According to media reports, shares of Zee Entertainment Enterprises Ltd. (ZEEL) surged more than three per cent on Friday after the company announced that it had received regulatory approval to recall its merger with Culver Max Entertainment Pvt Ltd (formerly Sony Pictures Networks India) and Bangla Entertainment Pvt Ltd (BEPL). ZEE’s stock gained as much as 3.26 per cent, reaching Rs 139.15 per share on the BSE.

    Despite initiating legal proceedings, Zee and Sony Pictures Networks India eventually reached a non-cash settlement in August 2024, resolving the matter amicably.

  • SAT allowing Punit as CEO of Zee/Sony merged co. – a potential overhang if Sony does not agree on the same

    SAT allowing Punit as CEO of Zee/Sony merged co. – a potential overhang if Sony does not agree on the same

    Mumbai: As per media reports (link – https://tinyurl.com/4sfbhbn4

    ), Sony does not want Punit Goenka to head Zee/Sony merged co, amidst the ongoing SEBI investigation which will continue despite interim relief from SAT. We believe this is as per our two scenarios pointed out earlier (scenario 1 – merger process expedited with clarity over Punit and scenario 2 – Sony not in favour of appointing Punit as CEO amidst the ongoing investigation), which clearly mentioned that Sony may not be in favour of having a CEO who is undergoing an investigation.

    Legally, we don’t foresee any challenge in appointing Punit as CEO, post the relief by SAT- as indicated by primary checks with legal experts too. However, as Sony is the majority in this merger – they may decide to appoint someone else due to this investigation; there is a high likelihood of Sony appointing someone internally to head the merged co.

    There is minimal impact of the above move (change in CEO) eventually, as the appointment of a new CEO will require a mere shareholder and Board approval; as mentioned earlier, we don’t foresee big delays beyond a point for the merger and the process could end over next 8-12 weeks, as Sony may not wait longer than that. Hence, we don’t even expect a big delay as such on the merger due to this move. Expect a larger transition time in business synergies case of Sony acquiring Zee without Punit, due to a potential new management for Zee

    Albeit above, 1) the business synergies, 2) superior CG (corporate governance) practice, 3) scale in OTT remain to be the drivers for the merged co and this could drive superior valuation multiples.

    Various scenarios that could emerge basis above – if Punit Geonka changes his stance and wants to remain CEO of the merged co, post SAT approval or keeps his stance (not wanting to become CEO)

    1) Scenario one – Sony may back out – merged called off  (Probability -20 per cent)

    In case of Punit Goenka wanting to be the CEO of the merged co. and Sony not agreeing upon the same,  it may lead to Sony backing out of the merger. We believe the probability of this event seems to very low, as the merger is very important for Z shareholders and the Goenka family; also, Sony may struggle to scale up in a market like India in case Disney is acquired by Reliance. We believe Sony too is equally eager for the merger as Z is, as the linear TV and OTT market has turned disruptive.

    2) Scenario two – Punit remains CEO of the merged co (Probability -10 per cent)

    In this scenario, Sony may allow Punit Goenka to remain as CEO and have their own finance, operations team for day to day affairs, with a majority on Board by Sony. However, given Sony’s MNC culture, this may seem to be a low likelihood event, unless they legally need to do it (As per term sheet of the merger) and cannot back out of the merger; Sony may not want to have a CEO on Board, who is under a SEBI investigation

    3) Scenario three – Punit may be offered a board seat, but not a CEO role (Probability -30 per cent)

    In this scenario, Punit may be offered a Board seat in the merged co, but not a CEO designation, until the outcome of investigation is known. This in turn may lead to superior CG practices in Z, with change in finance and operations team post the merger by Sony. This could potentially be a win-win for both parties, if mutually agreed upon. Further, Punit may also ask Sony for a higher non-compete fee in case he plans to step aside of Zee and not become CEO. We believe the probability of this event is on the higher side, as Punit may eventually agree to be on Board in the interim, until the outcome of investigation is known with a higher non compete fee

    4) Scenario four – Merger goes ahead without Punit (Probability – 40 per cent)

    In this scenario, Punit Goenka agrees to step aside as CEO if Sony decides to call off the merger; Sony may continue to run its India operations in India if the merger is called off, but Zee may struggle as valuations may come off atleast 50 per cent if the merger does not go through, which in turn could hamper shareholder and promoter stake valuation in Z today. We thus believe that at the end of the day, bargaining power is limited from Z promoter side, and they may have to agree upon the same. Sony can also seek shareholder approval (consortium) and go ahead with the merger without Punit Goenka. We believe probability of this event is the highest as shareholders own the company, with promoters having a mere 4 per cent stake.

    In terms of merger process, Z has already filed with ROC (Registrar of Companies); the merger process has reached advance stages and hence it may be tough for Sony too to back out of this merger. We thus believe that the likelihood of this merger going through remains high (80 per cent probability) with or without Punit Geonka; however, the recent approval by SAT allowing Punit as CEO and Sony not agreeing upon the same is a potential risk for the merger, as probability of the merger not going through moves up to 20 per cent now. As per our checks with legal experts, SEBI will file a stay in Supreme Court against the SAT order by end of this month. We await updates from Sony and Zee management, which will provide us more colour on where this merger could be headed.

    The credit for this article goes to Elara Capital Sr VP – research analyst (media, consumer discretionary & internet) Karan Taurani.

  • Post SAT order impact – Media & entertainment – Win-win for Z-Sony

    Post SAT order impact – Media & entertainment – Win-win for Z-Sony

    Mumbai: The Securities Appellate Tribunal (SAT) passed an order on 30 October 2023 allowing Mr. Punit Goenka to become CEO and MD of the merged company, Zee Entertainment-Sony (Z-Sony). Based on our assessment of the detailed order (Zee SAT order) and channel checks with legal experts, we believe the SAT order is a positive for Goenka, as it states he can continue as MD and CEO, as there no strong evidence yet to support the allegations of money siphoning against him; further, his counsel has provided adequate evidence and documents to substantiate it.

    Post this order, there is a high likelihood the Securities and Exchange Board of India (SEBI) will appeal against the order in the Supreme Court to get a stay; however, Z-Sony merged co. can be formed with Goenka as its head in the interim. The SAT order also states the investigation in this case will continue; as per our assessment, the outcome could take 12-18 months; Goenka could obtain necessary legal recourse in case the outcome is against him in the medium term; if it is favourable, he will continue as usual.

    This underscores our view that there is no likelihood of Sony backing out from the merger, and Goenka getting relief could lead to expedited timelines for the merged entity to be formed with him at the helm, as it may not require changes in the term sheet or any shareholder and Board approval. Further, appeals made by Axis Finance and IDBI Bank will have no impact on the merger, and the NCLT approval is without any conditions. We believe the merged entity record date could be announced in the last week of November or in the first week of December, which means the merged firm could be listed in January 2024 (post six weeks of delisting). We maintain BUY with a Sep’24 TP of Rs 340.

    SAT order removes overhang on merger: Goenka to be reinstated as CEO of merged entity

    The SAT order is a significant victory for Goenka. Nevertheless, it is expected that SEBI will persist with its investigation, as the allegations against Zee Entertainment appear to hold merit. However, Sony will have to appoint Goenka as CEO of the merged company; further, this will not lead to change in the merged entity board and merger timelines. It is highly likely that SEBI will file a statutory appeal against the SAT order in the Supreme Court in the next 60 days. If this were to take place, the earliest date for a hearing would be scheduled for the first week of January 2024. Therefore, we believe there is no likelihood of Sony backing out of the merger as there are no legal constraints preventing it from proceeding. Further, the cases before the National Company Law Appellate Tribunal (NCLAT) against Zee will continue and will have no impact on the merger.

    SEBI to continue with the investigation without a timeframe

    As per the order, SAT has acknowledged the allegations of fund diversion have yet to be proven, and both Zee Entertainment (Z IN) and Goenka have presented satisfactory explanations supported by documentation, effectively fulfilling the burden of proof. Additionally, SAT also says it has noted factual inaccuracies in the order issued by whole-time members regarding specific companies that were classified as Essel Group companies when in fact they were not, but at this moment it is not fair to punish Goenka because the merger of Zee-Sony has been allowed. Nevertheless, SAT has granted SEBI the authority to proceed with its inquiry into the alleged fund diversion of Rs 42.1bn by Subhash Chandra and Goenka, without establishing a specific timeframe for the investigation. Z and Goenka have been instructed to cooperate with the investigation.

    Merged entity likely to be listed between December 2023 and March 2024

    We expect the merged entity to get listed anytime between December 2023 and March 2024.  This will depend on how Sony wants to take it forward. The RoC (Registrar of Companies) filing has been done and processes required for the merger could end in the next four weeks. The investigation timeline could vary between 12 and 18 months post the merged entity is formed. In case allegations are not proven, things will continue as usual. However, in case allegations are proven, Goenka may have to step down or find legal recourse. Post the merged entity is formed with Goenka as CEO, our checks with legal experts indicate that Sony may also support Goenka in legal proceedings against SEBI, which also provides comfort.

    We retain our positive stance on Z-Sony merged company

    In the newly configured merged entity Board, five out of nine directors would represent Sony, with the Chairman also hailing from Sony. This shift in Board composition is anticipated to lead to an enhancement in corporate governance at Z along with a change in management dynamic favouring Sony. We retain our positive stance, led by:

    1) synergistic benefits

    2) MNC control (superior corporate governance practices)

    3) positive impact of consolidation in the TV industry

    4) Scaling up of the OTT business.

    The credit of this article goes to Elara Capital SVP Karan Taurani

  • SAT sets aside SEBI order against ZEE promoters

    SAT sets aside SEBI order against ZEE promoters

    Mumbai: SAT has quashed SEBI’s order of barring Punit Goenka from holding key directorship in listed entities over the alleged fund-diversion case.

    Our view

    Implications of the event

    Scenario 1- This may expedite the Zee/Sony merger process; if SEBI gives a go ahead in favour of Punit Goenka, without going to the Supreme Court, post the detailed order that is to be released tonight. In this case, we expect the record date to be announced around last week of November 23. This in turn means that the listing of the merged co. will happen towards the first week of Jan ’24. Further, with Goenka coming on Board, there will be no need for any changes in the term sheet, or any Board/shareholder approval required for change in CEO; this also means that business will be as usual for ZEE and lesser transition time with little change in senior management.

    Scenario 2- SEBI can also move to the Supreme Court to appeal for a stay against SAT’s order. Further, the SAT order may only mention that Goenka can continue as CEO of Zee or the merged co; however, SEBI’s investigation on grounds of fraud may continue after this relief by SAT. This in turn means that there is still a high likelihood of the merger going through without Goenka. We believe there is a low likelihood of Sony allowing Goenka to continue as CEO of the merged Co, unless the issue with SAT is resolved (in case of SEBI going to Supreme Court). In this case, there may be a delay in the merger too, if Goenka changes his stance  and waits for the outcome of investigation; if Sony does not wait, then merger will go through as usual and the merged co will get listed by Jan’24

    Change in media landscape – a big benefit for Zee/Sony

    With Reliance wanting to acquire Disney, the media landscape on TV/OTT side will see a big consolidation as two large players – 1) TV18/Disney and 2) Zee/Sony could potentially command a market share of 67%/53% (TV18/Disney and Zee/Sony together) on TV/OTT in India; which could shift bargaining power in their favour and help them grow ahead of industry averages, as other players may scale down in the ecosystem

    No overhang of CG issues

    With Sony coming as a parent company, we expect no CG (corporate governance) issues in the future, which in turn will drive re-rating of valuation multiples for Zee.

    The stock has corrected more than 10 per cent from its peak over the last three months post the NCLT approval in Aug’23, citing delay on the merger. We await 1) the detailed order and 2) SEBI’s response on the above judgement order passed by SAT to allow Goenka to be a part of Z to assess the actual impact of the above decision for the merger and Goenka; we have a BUY recommendation on Zee with a Sept 24 TP of Rs 340 – we will await more developments over the near term on above.

    Background of the event

    • On 12 June 2023, SEBI banned ZEE promoters Chandra & Goenka from holding directorial, key managerial roles over allegations of fund siphoning. On 13 June 2023, ZEE promoters approached SAT against the order following which SAT provided SEBI 48 hrs. to file a reply against ZEE’s plea.

    • On 10 July 2023, two weeks of time were provided by SAT to ZEE promoters to file a response against the interim order. Meanwhile ZEE formed an interim committee of senior executives to run operations at the company.

    • On 14 August 2023, SEBI asked for 8 months of time to complete investigation of alleged fund diversion by Zee promoters (due to significant red flags in the transactions between Zee and Essel entities) which was again challenged by ZEE on 26 August 2023.

    • On 27 September 2023, SAT reserved order on the case after hearing from both the parties.

    • On 30 October 2023, SAT quashed SEBI’s order barring Goenka from holding key directorship in listed entities over the alleged fund-diversion case.

    The credit of this article goes to Elara Capital SVP Karan Taurani

  • MNC media juggernaut arrives

    MNC media juggernaut arrives

    Mumbai: The National Company Law Tribunal’s (NCLT) approval for the Zee Entertainment -Sony merger without conditions offers further respite for Z valuation, which has been muted for the past two years (the stock has not given any absolute returns). The company will now move to Registrar of Companies to file for the merged entity once the final NCLT order is released; in the interim, we await the outcome of the SEBI and SAT cases against the Goenka family, the promoter, which may not have any adverse impact on the merger, as Punit Goenka has already stepped down from the Board; in a worst case scenario, the Board and shareholders will appoint a new CEO in case SAT order is against Punit Goenka. Post the regulatory approvals, Z will be delisted, and the merged company will be relisted as Sony-Zee wherein 100 shares of Z will enable shareholders to get 85 shares of the merged entity (~2-3 months process). We do not expect any change in the deal contours despite the long delay, as NCLT has approved the scheme. Further, Sony will get a majority shareholding of 50.8 per cent in the merged entity whereas the Goenka family’s stake will move up to 3.99 per cent, which includes the non-compete fee. We do not expect any impact from creditors filing a case against the NCLAT order.

    Moat remains for the merged company

    Z-Sony commands an ad market share of 24 per cent as on CY22, below the other large peer, Star-Disney, which is at 33 per cent; formation of a large entity on the broadcasting side would lead to cost and revenue synergy, which would offset the negative impact of lower growth rates (India TV ad revenue CAGR has been flat over FY20-23).

    Valuation: reiterate Buy with a higher TP of Rs 340

    We expect better execution in terms of strategic initiatives, due to global expertise and better CG (corporate governance) initiatives , which should propel higher cashflow. We do not expect Z-Sony valuation moving to 32- 33x fwd. P/E (peak valuation multiple in FY18). This is because India’s media landscape has changed with 1) TV broadcasting growth rates converging, and 2) digital business offering limited opportunity for monetization & scale due to disruption; however, we expect the negative impact to be offset by: 1) the merged company, and 2) an MNC-backed firm, which would lead to P/E at a 40 per cent discount vs peak (32x one-year forward). We introduce FY26E for the merged entity and value the core broadcasting business at 20x (from 17x) one-year forward P/E (potential exit of Disney from linear TV may enable Z-Sony to gain market share). We rollover to 24 Sept (since synergies will take some time to kick in) SOTPbased TP of Rs 340 from Rs 300 (after factoring in higher sports losses), with a cash infusion from Sony, synergy and valuing the OTT business 4x one yr. fwd. EV/Sales; our PAT estimate incorporates potential OTT losses.

    The credit of this article goes to Elara Capital SVP Karan Taurani.

  • Axis Finance moves to NCLAT – more noise, no impact

    Axis Finance moves to NCLAT – more noise, no impact

    Mumbai: Axis Finance has approached the National Company Law Appellate Tribunal (NCLAT), Delhi against the National Company Law Tribunal (NCLT) order approving the merger of Zee and Sony. The NCLAT has served notice to Zee in response to Axis Finance’s plea.

    We believe the above issue of Axis Finance approaching the National Company Law Appellate Tribunal (NCLAT) will not have any impact on the merger between Zee and Sony because the claims being pursued by Axis Finance, which amount to Rs 1,000 mn, are not directed at Zee but rather at its parent company, Essel Group. As mentioned in the NCLT merger order (Zee/Sony), Axis Finance has previously approached various legal bodies, including the Debt Recovery Tribunal (DRT) and high courts, for above claims; however, judgements on the same have not been in their favour (Axis Finance). Therefore, we believe these claims lack merit and will not impact the merger. Also, appeals with NCLAT may continue for months even after the merged company is formed, just like in the case of PVR-Inox merger (Consumer Unity & Trust Society appealed in NCLAT against the merger and the case got dismissed in August 2023 – six months after the merged company of PVRINOX was formed).

    As for the current status of the merger, the merged company is progressing with the Registrar of Companies (ROC) filing process, post receipt of the NCLT merger order. They are also engaged in discussions regarding Closing Precedents (CP) (the merged company may want to include July/August financials as well), which may result in a delay of two to three weeks in the merger timeline. We believe the record date is usually given one week prior to delisting. Considering the marginal delay in CP, the record date for the merger could be towards the last week of October 2023. Subsequently, relisting is expected to take place in the first or second week of December 2023 vs our earlier expectation of the second week of November 2023. Additionally, the company will need to submit details of the merged co. Board of Directors to the Ministry of Information & Broadcasting (MIB), before the record date is finalised.

    Further, the SEBI/SAT issue (with promoters) too may not impact the merger timelines as the NCLT merger approval is without any condition.

    We have a BUY recommendation on Zee with a 24 Sept TP of Rs 340 – we maintain our positive stance on the company; PFA our latest company update post the NCLT merger approval.

    The credit of this article goes to Elara Capital SVP Karan Taurani.

     

  • MoS IT Rajeev Chandrasekhar assures swift action: Data Protection Board to be notified of new rules soon

    MoS IT Rajeev Chandrasekhar assures swift action: Data Protection Board to be notified of new rules soon

    Mumbai: Minister of state for electronics and IT Rajeev Chandrasekhar has assured that the government will shortly notify the Data Protection Board (DPB), along with appointment and recruitment rules for its chairperson and members, according to media reports.

    The Digital Personal Data Protection (DPDP) Bill 2023, became law earlier this month and the ministry of electronics and IT (MeitY) is working on operationalising it. Modalities for the appeal process at the Telecommunications Disputes Settlement and Appellate Tribunal (TDSAT) are also being formulated, according to the minister.

    The DPDP Act has a consent framework under which companies and businesses (data fiduciaries) can process the personal data of any user only with explicit consent. The law permits the government to specify geographies where data cannot be processed, while allowing for its free flow to other jurisdictions.

    The Act has also suggested a penalty of up to Rs 250 crore per data breach instance, and a maximum penalty of Rs 500 crore for all such violations, along with mandating stiff norms for the protection of children online. It also has a provision to block platforms that repeatedly fall foul of the law.

  • Personal Data Protection Bill introduced in Lok Sabha

    Personal Data Protection Bill introduced in Lok Sabha

    Mumbai: The government on 3 August has introduced the Digital Personal Data Protection Bill 2023, in the Lok Sabha, outlining the lawful collection, processing and protection of private data. An independent body, the Data Protection Board, will be established to examine personal data breaches and impose penalties. It also prescribed penalties up to Rs 250 crore for data breaches.

    According to the proposed law, digital platforms must obtain explicit and informed consent from users to process their data. Users will have the right to withdraw this consent at any time, after which platforms must cease data processing and erase the relevant data. The Bill also permits the transfer of personal data to any country, except those the government may blacklist in the future.

    The Bill, a product of over four years of work, numerous deliberations, and multiple revisions, presents a distinct framework compared to earlier draft legislation on the subject.

    In a relief for the industry, the Bill allows cross-border data transfers, introduces voluntary undertaking of data breaches, and removes criminal penalties prescribed in the 2019 draft.

    The Bill excludes anonymised, non-personal, and offline personal data, and does not categorise data as sensitive or critical. To reduce litigation, the Bill includes provisions for alternative dispute resolution (ADR). If enacted, the law will become a key component of India’s rapidly expanding digital economy.

    Disputes with the board’s decisions can be taken to the Telecom Disputes Settlement and Appellate Tribunal (TDSAT). The Bill outlines the broad principles of data protection, with the specifics of legal requirements to be clarified when the government defines the rules following the Bill’s enactment.

  • Zee Merger update – SAT modifies its directions in Zee funds diversion case

    Zee Merger update – SAT modifies its directions in Zee funds diversion case

    Mumbai: As per media reports, Securities Appellate Tribunal (SAT) on Thursday, agreed to modify its directives passed in an order dated 10 July regarding Zee funds diversion case. SAT had directed SEBI to appoint a WTM (Whole Time Director) other than Ashwani Bhatia, who had passed an interim order against Punit Goenka and Subhash Chandra to remove any kind of bias. However, SEBI will soon be left with only one WTM other than Mr. Ashwani Bhatia as Ananta Barua is scheduled to retire on 31 July.

    The third WTM, Ananth Narayan was a part of a settlement hearing related to Zee in an insider trading and non-disclosure matter while the fourth WTM SK Mohanty’s term ended on 23 June.

    SEBI had filed an application on 24 July for modification in the SAT order due to lack of whole-time members (WTMs) to take up the Zee case.

    Modifying the previous order, SAT directed SEBI to appoint another WTM and if no WTM is available, then any authorised officer higher in grade or rank or position to the WTM would hear and decide the matter.

    Credits: Elara Capital senior VP Karan Taurani

  • Zee forms interim committee of senior executives to oversee operations

    Zee forms interim committee of senior executives to oversee operations

    Mumbai: Zee Entertainment Enterprises has replaced MD and CEO Punit Goenka with an interim committee of senior executives. The objective is to ensure seamless operations within the media and entertainment firm.

    The development comes almost a month after the Securities and Exchange Board of India (SEBI) issued an interim order on 12 June, preventing Goenka and Essel Group chairman Subhash Chandra from occupying top managerial roles in any listed company.

    In an internal email, Goenka wrote, “Over the last one month or so, there have been a lot of words that might have caught your attention. Especially the ones that came with a tinge of negativity. And hence I thought, it is important for me to pen down this note for all of you, to ensure that there is the utmost level of clarity and transparency.

    As you all might have noted, on June 12, 2023, I was served with an ex-parte order by the SEBI, concerning certain transactions conducted at an Essel Group level in the year 2019. With the help of legal experts, I am exercising my legal rights to seek justice. SAT has given a hearing to the matter and has passed an order on July 10, 2023, setting a framework for this process. In line with the order and in accordance with the law, I am taking the next steps. There is nothing more to it.”

    He further added, “Since the order restricts him from holding a directorial or key managerial position in a listed company, in the interim, the Board of our Company has constituted an Interim Committee of senior executives to ensure smooth operations and day-to-day functioning. The Interim Committee will be under the supervision of the Board and will seek its guidance on all matters pertaining to the Company.”

    He continued that the important point to focus on is not what is happening to him but what is happening, or should happen to our great Company. The important point to be excited about is the fact that this Company is all set to merge with the most prestigious global media and entertainment brand – Sony.

    He commented, “The proposed merger with Sony has reached a very important juncture. The Mumbai Bench of the National Company Law Tribunal (NCLT) has reserved its order for approval in the final stage of the hearing conducted on July 10, 2023. The merger has already been cleared by the Competition Commission of India (CCI), Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and above, by the esteemed shareholders of our Company.”