Zee-Sony merger deal will be delayed and certainly needs to be renegotiated, experts said a day after India's markets regulator barred Zee' Subhash Chandra and Punit Goenka from the boardrooms of listed companies for a year.

Share Market Live

NSE

The Securities and Exchange Board of India (SEBI) said in its order that Chandra, former chairman of Zee, and Goenka, managing director and CEO of Zee, were actively involved in diverting company funds to the group's other listed entities and firms related to founding shareholders. They were also direct beneficiaries of the fund diversion, the regulator said.

Chandra and Goenka have moved the Securities Appellate Tribunal (SAT) challenging the markets regulator's order. SAT will take up the matter on June 15.

Now that the SEBI has suspended Goenka and Chandra from their managerial positions, here's a look at how it would impact the Zee-Sony merger:

‘Zee-Sony merger deal will need to be renegotiated’

Hetal Dalal, President and COO of Institutional Investor Advisory Services (IiAs), said the deal's contours might need to be changed if the SEBI order holds. "How the promoters are going to fight for the merger and how that plays out still remains to be seen. This is an internal order so will have to wait till the entire story plays out," Dalal said.

There are two ways of looking at this, she said. “Goenka can no longer be the MD of the merged entity. If SEBI’s order goes through and it (the company) is unable to appeal it, the question that remains is — should he be paid the non-compete fee of Rs 1,100 crore, given that no longer he will not even be in the merged entity.”

The other way of looking at it is from Goenka’s point of view. If he's no longer going to be the CEO of the merged entity, is there any case for his firm to have the merger and can he just continue running Zee at a 4 percent equity shareholding? “The outcome of this will have its implications on how both parties see the merger going through,” she said.

She also thinks the deal contours may have to change and that pegs the question of whether Zee will continue to remain interested in the transaction of this nature given it doesn’t have a majority share. “It will certainly need to be renegotiated and whether the renegotiation goes through or the merger fails remains to be seen,” she said.

‘Sony may want forensic audit’

HP Ranina, Senior Advocate, Supreme Court, meanwhile, said the first step would be to get Goenka’s name cleared, which can take a few months if not years. Ranina also thinks that Sony might ask for a forensic audit.

"If allegations are siphoning off funds, then nobody will want to go ahead with the deal and even the stock exchange will want to know whether there is any veracity to this type of allegation. I don't see it happening at all because there will be so many other roadblocks, legal and otherwise, both from the SEBI and from the stock exchange,” he said.

‘Sony may not back out’

Karan Taurani, Senior Vice President - Research Analyst (Media, Consumer Discretionary and Internet) at Elara Capital, said the outcome of SAT is going to be the deciding factor on where the merger moves from here.

“If at all, SAT dismisses the plea, and says both Chandra and Goenka will not be a part of the key managerial position or of the board, then what does Sony do? Even then I don't think Sony is going to back out because it also wants the merger just as Zee has been doing,” Taurani said.

Sony’s counterpart in Japan had earlier in a statement said that it expects the merger closure to happen in the second half of this financial year.

Watch the accompanying video for more

First Published:Jun 13, 2023 4:22 PM IST