In a big relief for Zee merger, India’s bankruptcy appellate tribunal on May 26 set aside an order by the National Company Law Tribunal (NCLT) order to bourses NSE and BSE to review their approval to the media firm's merger with Sony. The National Company Law Appellate Tribunal (NCLAT) has remanded the case back to NCLT to decide on the issue after hearing both sides.

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The National Company Law Appellate Tribunal (NCLAT) held that as per principles of “natural justice,” Zee should have been heard by NCLT before the NSE and BSE were directed to review their no objection certificate (NOC) given for the merger of the Zee and Sony.

The NCLAT noted that there was no occasion for Zee to respond to the concerns raised. The appellate tribunal said the NCLT order should be set aside for violation of principles of natural justice.

The Zee-Sony merger case was supposed to be heard on Thursday, however, a two-member bench of the NCLAT on Thursday directed the counsel appearing for Zee Entertainment Enterprise Ltd. to remove defects in the plea and direct it to list the matter the next day.

Zee told the appellate tribunal that $1.5 billion of foreign direct investment (FDI) will come as a result of Zee-Sony merger. “We have secured all statutory approvals, 99.8 percent shareholders have approved the scheme...No statutory authority is objecting to the scheme, private objections may have been raised, we are addressing these claims,” the media company said.

It claimed that the NSE and BSE that granted approval to the merger last year have suddenly cited a Securities and Exchange Board of India (SEBI) order against a sister company of Zee.

It added that SEBI has already examined the deal, evaluated the non-compete clause and granted its nod. The firm has also received approval from the Competition Commission of India (CCI).

“We were not heard and allowed an opportunity to respond to BSE and NSE citing a Sebi order against our sister company, NCLT should have at least heard us.”

This comes as the NCLT had directed NSE and BSE to reconsider their prior approvals for the merger of ZEEL and Culver Max Entertainment (earlier known as Sony Pictures Networks India).

It had asked the bourses to reassess the non-compete fee under the clause of the merger. The said order was challenged by ZEEL before the appellate tribunal, contending that it was not granted adequate opportunity by the NCLT to present its side and it didn't follow the principles of natural justice.

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Zee had also contended that the bankruptcy tribunal NCLT doesn't have jurisdiction over non-compete issues.

As per the scheme of the arrangement, Sony will indirectly hold 50.86 per cent of the combined company. The founder of Zee will own around four percent and the rest will be with the other shareholders of ZEEL. Moreover, Sony Group will also pay a non-compete fee of Rs 1,100 crore to the Essel Group promoters.

Earlier this month, Japanese conglomerate Sony Group Corporation Chairman and CEO Kenichiro Yoshida said he expects the merger to be complete within the first half of this fiscal.

In September 2021, Sony Pictures Networks India and ZEEL entered into a non-binding term sheet to bring together their linear networks, digital assets, production operations and programme libraries. The combined entity will own over 70 TV channels, two video streaming services (ZEE5 and Sony LIV) and two film studios (Zee Studios and Sony Pictures Films India), making it the largest entertainment network in India.

What experts say

Following the NCLAT ruling, Karan Taurani of Elara Capital said had the case gone back to the exchanges, this could have been a delay of close to two to three months in terms of getting the re-approval. However, if things are going as it is, merger approval should come in the next six to eight weeks.

Reflecting on the Zee stock, Jinesh Joshi-Research Analyst at Prabhudas Lilladher, believes recovery should start coming in by second half and we should see that 13-14 percent kind of an EBITDA margin by second half as the festive season sets in. And obviously this relief is also a very good thing for the stock.

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First Published:May 26, 2023 12:56 PM IST