The Competition Commission of India (CCI) on October 4 granted conditional approval to the proposed merger of Zee Entertainment Enterprises Ltd with Culver Max Entertainment Pvt Ltd (CME), formerly known as Sony Pictures Networks India.
The amalgamation has been approved “with certain modifications”, the commission said in an official release.
Along with Zee, Bangla Entertainment Private Limited (BEPL), which is an indirect-wholly owned subsidiary of Sony Group Corporation, will also be merged with CME.
“The proposed combination relates to (i) amalgamation of each of Zee and BEPL with and into CME; and (ii) preferential allotment of certain shares by CME to Sunbright International Holdings Limited (earlier known as Essel Holdings Limited), and Sunbright Mauritius Investments Limited,” CCI stated.
Persons privy to the development said the fair trade regulator has asked Zee and Sony to ensure no misuse of market dominance, arising out of the merger.
Concerns were raised by the CCI on the impact of the Zee-Sony merger with the merged entity having market dominance and monopolistic pricing in terms of ad rates, the sources said, adding that Zee had suggested shutting down of a general entertainment channel (GEC).
According to Karan Taurani, senior vice-president, Elara Capital, smaller channels from niche genres like rural GEC, Bangla etc are the ones that may switch off basis each one’s strength.
For example, Sony may switch off Bangla since their share is minimal there. This in turn would not have a big impact on the overall revenue drivers and earnings.
In terms of viewership share, Zee and Sony are at below 40 percent as a combined entity across genres, except the movie genre where the share is above 50 percent for the merged company.
Taurani added that since there is no major overlap for the companies, any large flagship channel is not expected to go off air. “But if there is any indication of a flagship urban GEC channel shutting down by either of the broadcasters then it will be a big risk as that drives a reasonable portion of revenues due to higher pricing.”
In terms of total viewership, Zee and Sony together command a total TV viewership share of around 24 percent, slightly higher than that of Disney Star at 20 percent.
When it comes to advertising, Zee and Sony as a combined entity will command an ad revenue market share of 27 percent which is largely at par with Disney Star that has a TV ad market share of 26.5 percent as of FY21.
The conditional nod from CCI comes over a month after it was reported that the anti-trust watchdog has flagged the potential adverse effects arising out from the Zee-Sony merger. The tie-up which would create a $10 billion TV enterprise will potentially hurt competition by having “unparalleled bargaining power”, the commission had found in its initial review, news agency Reuters reported on August 31, citing an official CCI note which it had seen.
Ahead of the CCI’s approval, the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) had given their go-ahead for the proposed merger on July 29.
The merger was first announced on September 22 last year. After a 90-day period to conduct due diligence for the process which ended on December 21, the Board of Directors of Zee approved the proposal.
The Board had then said that while Sony will hold a 50.86 percent stake in the merged entity, promoters of Zee will hold 3.99 percent, and the other Zee shareholders will hold a 45.15 percent stake in the combined company.
Under the terms of the definitive agreements, Sony will have a cash balance of $1.5 billion to enable the combined company to drive sharper content creation across platforms, strengthen its footprint in the rapidly evolving digital ecosystem, place bid for media rights in the fast-growing sports landscape and pursue other growth opportunities, Zee had said at the time of Board’s approval for the merger.
According to analysts, the merger is significant as the coming together of Zee and Sony will bring tremendous synergies between the two companies that will exponentially grow the business and the sector.
Experts had also pointed out that the merger will create the largest entertainment network in India with a 26 percent viewership share and that the consolidation is a big positive as the merged entity will become a serious contender to replace market leader Star and Disney in the medium to long term.
Structural changes likely suggested
Ketan Mukhija, Partner at law firm Link Legal said the CCI is likely to have suggested structural changes which are easy to monitor. He added that the regulator in the past suggested structural changes in 5-6 cases including Sun Pharma- Ranbaxy and PVR’s acquisition of DT Cinemas.
In 2016, multiplex operator PVR had said that it revised the terms of its deal to acquire DT Cinemas after an objection by the regulator. The company lowered the deal value to Rs 433 crore from Rs 500 crore to complete the deal.
“The CCI has never blocked a transaction till date. It has, however, approved transactions subject to certain modifications or commitments. For example, in Bayer and Monsanto, a large number of assets were required to be divested, while in Schenider Electric and L&T, the CCI required a white labelling arrangement and a transfer of technology among other things,” said Abdullah Hussain, Partner, DSK Legal, a law firm.