SAT relief to Punit Goenka puts Zee-Sony merger back on track: New entity may list in Jan?

Industry insiders predict the record date for listing of the $10-billion media and entertainment powerhouse could be set by November-end.

As Securities Appellate Tribunal (SAT) on Monday paved the way for Punit Goenka to continue as the Managing Director of the merged Zee-Sony entity while setting aside the SEBI order barring him from holding any key positions in the company, industry experts said it could expedite the merger process as the company is now alleviated from the legal uncertainties that clouded it.

The SAT verdict has also caused a buzz in the industry that with ZEEL and Sony now going ahead with the merger soon, and Reliance wanting to acquire Disney’s India business, the media landscape in the TV/OTT space will see a big consolidation. The two large players – TV18-Disney and Zee-Sony could together potentially command a market share of 67%, leaving little for other players.

According to industry insiders, the listing of the Zee-Sony merged entity, which will create a $10 billion media and entertainment powerhouse, could happen anytime in January next year and the record date could be set by November-end.

“In this case, we expect the record date to be announced around the last week of November. This in turn means that the listing of the merged company will happen towards the first week of January 24. Further, with Punit Goenka coming on the board, there will be no need for any changes in the term sheet, or any need for approval from board/shareholder for change in the CEO. This also means that business will be as usual for ZEE and lesser transition time with little change in senior management,” Elara Capital’s Karan Taurani said.

While allowing Goenka’s appeal against the SEBI verdict, SAT held that there is no evidence to show that he exercised positive control over the borrowed entities and that there was no need to put the merger to continue without a head.

“The fact that greater responsibility (if any) has come upon the appellant (Goenka) pursuant to the merger, then all the more reason that he should be allowed to continue rather than putting the merger to continue headless when 99.97% of the shareholders reposed faith in him to continue as Managing Director of the merged entity,” the tribunal observed.

The tribunal observed that the structure of the merged entity is that Sony Group would have the majority shareholding in the merged entity and will also have majority members in the board of directors and would have right to appoint key managerial personnel like Chief Financial Officer, Chief Compliance Officer, Company Secretary etc. and Goenka would be just one of the nine directors of the merged entity.

“Hence, his continuation as the Managing Director in the merged entity would have no impact on the investigation,” it said while allowing Goenka to continue heading the company.

It however said that if any material comes out against him during the course of the investigation, then appropriate procedure can be adopted by SEBI in accordance with law.

According to legal experts, the lift of ban will now pave the way for early disposal of merger, subject to other legal formalities.

“Market also responded favourably to the order and share price of ZEE gained around 1.5% during the day. The findings of the SAT are also significant as the interim relief was granted 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,” Advocate Diviay Chadha, Partner, Singhania & Co, said.

Sandeep Bajaj, Advocate, Supreme Court, said the swift resolution of the regulatory hurdle indicates that the merger might proceed at an accelerated pace, minimizing the risk of further delays.

“The tribunal's decision has come as a significant relief to Zee, alleviating the company from the legal uncertainties that clouded its merger plans with Culver Max Entertainment (Sony Pictures India). This positive momentum not only signifies a financial rebound for the company but also proves to be positive for the Zee-Sony merger.

“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 said.

According to Shivani Bhushan, Senior Associate at TAS Law, SAT order does not mean cessation of SEBI’s investigation into the alleged fund diversion/ siphoning of funds.

“The SAT’s order clearly mentions that Puneet Goenka and Subhash Chandra Goenka will cooperate in the investigation and during the course of the investigation, in case SEBI finds any relevant material/evidence against the Goenkas, then it may take appropriate steps as available under law,” she said.

The SAT had reserved its order on Goenka’s appeal in the matter on September 27.

In its verdict, the SAT also observed that, “The restraint order passed by the respondent (SEBI) pursuant to the ad interim order and the confirmatory order restraining the appellant (Goenka) to function as a Managing Director…of the impugned order is set aside. The appeal is allowed. The appellant shall, however, cooperate in the investigation.

“In the event any material comes out against the appellant during the course of investigation then appropriate procedure can be adopted by SEBI in accordance with law.”

On SEBI’s earlier direction to complete investigation in the matter within eight months, the tribunal took a stern view saying, there was “no real urgency” for it and noted that, “considering the track record of SEBI for which we take judicial notice, no investigation is completed within the stipulated period.”

“Sufficient explanations backed by genuine documents have been shown by the appellant and having validly discharged their burden. The investigation is going on and considering the track record of SEBI for which we take judicial notice, no investigation is completed within the stipulated period.

“We have seen that on numerous occasions whenever this Tribunal or the superior court has directed SEBI to complete the investigation within a stipulated period, the same has not been done and applications after applications are being filed by SEBI seeking time to extend the period of investigation,” it observed in the order.

The tribunal said that considering the fact that a wider investigation is now being undertaken by SEBI to consider the various LoC issued by ZEEL and its promoter companies, “we are of the opinion that there is no real urgency and therefore this Tribunal will not place any impediment in restricting the period of investigation…we are of the opinion that continuation of the interim order would be harsh and unwarranted and thus, cannot be allowed to continue any further.”

SEBI had barred Punit Goenka and his father Subhash Chandra from holding directorships or any key managerial positions in companies of Zee group till further directions.

This had resulted in Goenka stepping down as the Managing Director and CEO of Zee.