NCLT approved the merger between the two companies. It is corporate news in the headlines. It also tells a story about the concerns of creditors, business development opportunities, benefits of the stakeholders and approval authorities in a merger. Cost accountants and company secretaries get involved in the merger and acquisition. The approval authorities in a merger are NSE, BSE, CCI, NCLT, and SEBI. The blog talks about the real-time challenges in the process of a corporate merger.
Concerns of creditors:
The creditors opposing the arrangement are not the direct creditors. The merger is a way to recollect the dues. The regulatory authority argued the point that the creditors have limited authority. With the total shareholders, around 99.7% of shareholders support the merger. If the merger is unfair, illegal or unjust to the clause of the shareholders, the regulatory authority would intervene and stop the process. The shareholder clause describes the pre-emptive rights, transfer of shares, tag-along and drag-along rights. Tag-along and drag-along rights protect the minority shareholders in exit routes and terms of sales.
The quantum of the threshold limit was raised to one crore by the insolvency law committee. The objectors have failed to prove the quantum of the debt threshold. After the merger, the shareholding structure is 50.86 per cent with Sony, 3.99 per cent with Zee promoter, and 45.15 per cent with ZEEL shareholder group. The largest entertainment network would seek a large amount of funds and business expansion. NCLT rejected the objections and approved the merger.
Business development opportunities:
After receiving the NCLT order, the merged company would file registration with the Registrar of Companies. The ZEE board had requested the ZEEL authorities to start the due diligence process. Media network has high competition in digital and linear structure. ZEE entertainment share prices rose by 25 % after the merger news. Zee has 49 channels, and Sony has 26. Zee has a wide geographical presence. The primary marketing strategy of Sony is to penetrate the regional market. The company wants to increase sales and intensify marketing campaigns. Geographical presence and marketing strategy will improve business opportunities and sales. The chairman and CEO of Sony Yoshida Kenichiro said that the South Asian colossus is a young, creative and populous nation in the world. Sony Research India with Sony Pictures is developing AI models, video analytics, and speech recognition and recommendation engines. Sony is the third streaming platform in India. SonyLIV has 33 million subscribers. Sony has invested around JPY1 trillion in content IP. Sony is now collaborating with creators for the development of Kando. “Kando” means communities of interest or emotion in the Japanese language. Sony is investing in technology to bridge the gap between content creation and hardware. The company is planning potential plans for OTT platforms, television, games, anime, and music.
Approval authorities:
Mr. H.V. Subba Rao and Madhu Sinha are the authorities in the Mumbai NCLT bench. The bench listened to the objections raised by the creditors. The creditors of the company are Axis Finance, Asset Reconstruction Co, JC Flower Asset, IDBI Bank, IMAX Corp, and IDBI trusteeship. The deal was approved by the other regulatory bodies SEBI, CCI, and stock exchanges. The merger company would gain 26 % of the market share with a name as the country’s largest TV network. Subhash Chandra, chairman of Essel group filed a case by SEBI for misusing the funds generated from Zee Entertainment. The merger creates a broadcast powerhouse with a value of USD 10 billion. On the date of the announcement, the shares of ZEE Entertainment climbed to a 52-week high. The performance of Zee Entertainment shares for the past three years has been low. Zee Entertainment and Sony Pictures merge the digital assets, television networks, program libraries and product operations. The competitors in the media industry are Amazon, Netflix, Google, Meta and Spotify. The share market fund managers are ready to bet on the merged entity. Mutual fund companies also have increased their holdings. ZEE will be replaced by a new merged entity. The name of the new entity is Sony-Zee. After two to three months, the shareholders of Zee will get 85 shares for 100 shares in the merged entity. Sony has a reputation in sports and gaming. Zee has a reputation for customer rapport, regional identity and content creation. The collaboration will improve the value. The merger will tap the growth in the Indian advisement and OTT market.
Three types of mergers:
The mergers can be inbound and outbound. The inbound merger is the merger with an Indian company. The outbound merger is that the merged entity is a foreign company. The classification of mergers is elucidated below.
Conglomerate Merger
A conglomerate merger is a merger between industries that are not the same in terms of geographic location and production. The merger is not vertical and horizontal. The business activities of the two firms are unrelated. The merger story of L&T and Voltas is an apt example of the conglomerate merger. The companies are involved in engineering services and air conditioning product production.
Vertical mergers:
The merger between two companies with the same line of business activities is called a vertical merger. The manufacturing company joined hands with a distribution company to smoothen the distribution process. Vertical mergers strengthen the different stages of production and distribution.
Horizontal budget:
A horizontal budget is a merger between two companies with the same level of direct competition. Example of horizontal merger is Vodafone India and Idea Cellular Limited.
Advantages of international mergers:
- The merged companies become strong because of their mutual strength. This unity increases the total performance of the merged entity.
- The merged entity manages the high level of competition. The large market with diversified operations acquires a large market share.
- The collaboration reduces the shipping and transport costs. It strengthens the supply chain of the company.
- The merger will increase productivity. If the government policies are in favour of the merger, it would pay way to economic development.
- The amalgamation or merger results in increased productivity and competition. This results in price reduction.
- Foreign investors are interested in investing in India. The sectors with a demand for investment in India are agriculture, textile, education, technology, and automobiles. The merger increased the investment in research, technology and marketing.
Final words:
Mergers and acquisitions benefit the shareholders and company in terms of funding and research activities. The inbound mergers benefit the economy. The outbound merger benefits the company. Chartered accountants, cost accountants and company secretaries help companies in resolving the issues in the process of mergers.