The Securities Appellate Tribunal (SAT) on October 30, 2023 set aside an earlier order by market regulator Securities and Exchange Board of India against ZEE promoter Punit Goenka, barring him from holding key positions in four ZEE firms and the potential merged entity with Sony Pictures Networks India.
This clears the way for Goenka to be appointed Managing Director (MD) of the merged entity, if and when it comes through.
The court directed Goenka to cooperate in the investigation. If any violation is affirmed in the investigation, then the market regulator can take appropriate procedures, the court added.
In August, SEBI had said that it would complete the investigation within eight months. The allegations include siphoning of funds and circulation of money through related entities.
Elara’s View
Implications of the event
Scenario 1: This may expedite the ZEE/Sony merger process; if SEBI gives a go ahead in favour of Mr 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 the last week of November ’23. This in turn means that the listing of the merged company will happen towards the first week of January ’24. Further, with Mr Punit 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 the Supreme Court to appeal for a stay against SAT’s order. Further, the SAT order may only mention that Mr Punit Goenka can continue as CEO of ZEE or the merged company; 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 Mr Punit Goenka. We believe there is a low likelihood of Sony allowing Mr Punit Goenka to continue as CEO of the merged company, 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 Mr Punit 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 75 pc / 53 pc (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 pc from its peak over the last three months post the NCLT approval in August ’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 Mr Punit Goenka to be a part of ZEE to assess the actual impact of the above decision for the merger and Mr Punit Goenka; we have a BUY recommendation on Zee with a September ‘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 Mr. Subhash Chandra & Mr. Punit 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 of barring Mr. Punit Goenka from holding key directorship in listed entities over the alleged fund-diversion case.
- Karan Taurani @ Elara Securities
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