Sony Pictures Entertainment (SPE) takes Sebi’s interim order against Zee Entertainment Enterprises (ZEE) seriously.
Sony Pictures Networks India released a statement emphasizing their serious consideration of the SEBI interim order and their commitment to monitoring any developments that could impact the merger deal.
Fallacious press reports have been circulating recently, speculating about the future of ZEE’s planned merger with Sony Pictures Networks India in light of the SEBI interim order against Subhash Chandra and CEO Punit Goenka.
The SEBI investigation uncovered alleged misconduct by ZEE’s promoters, indicating that they had utilized their board positions to divert funds for personal benefit.
According to an investigation, SEBI issued an interim order against ZEE promoters on June 12, accusing them of abusing their board positions in ZEE and siphoning off funds for personal gain.
The regulator directed ZEE to present the interim order before its board within seven days.
The Goenkas have 21 days to respond to the regulator’s order. The Goenkas filed an appeal on June 13 against the Sebi order at the securities appellate tribunal. SAT admitted Chandra and Goenka’s appeal and gave Sebi 48 hours to reply.
ZEE and Sony Merger Deal is In Question
The ongoing situation surrounding the SEBI interim order has raised concerns and uncertainties regarding the progress and outcome of the proposed merger between ZEE and Sony Pictures Networks India.
According to reports, Sony remains committed to the merger, and nothing has changed for SPNI. Meanwhile, SPNI has a contingency plan if Goenka doesn’t receive relief from the courts.
However, the company is currently not engaged in discussions regarding the matter. Additionally, legal experts suggest that the merger scheme may need to be amended if the SEBI order stands. Therefore, one possible amendment could involve proposing a new CEO and MD for the merged entity.
The Merger on Hold
In late 2021, Sony and Zee made the decision to merge their television channels, film assets, and streaming platforms. However, the progress of the deal experienced delays due to various reasons.
One factor was a legal battle with lenders concerning loan defaults by a Zee group entity. Additionally, reports suggested that stock exchanges were reconsidering their approvals for the merger.
Despite these challenges, the Competition Commission of India (CCI) granted approval to the amalgamation of Zee Entertainment Enterprises Limited (ZEE) and Sony in October 2022.
NCLT Hearing about Merger Next Week
Meanwhile, the National Company Law Tribunal (NCLT) hearing on the potential merger of ZEEL with Sony Pictures Networks India is scheduled for June 26. Amid the proceedings, the counsel representing Zee Entertainment Enterprises argued that Sebi had no evidence beyond the bank statements to support the allegations.
Consequently, the council requested a stay on the Sebi order. Adding to the uncertainty, a BofA report pointed out that Sebi’s interim order poses significant risks to the merger with Sony.
The report further highlighted the increased ambiguity surrounding the merger’s direction and the potential role of Goenka as CEO of the joint entity.
As a result, it remains unclear whether the Zee promoters will ultimately face a bar or not. Underscoring their argument, the counsel emphasized that Sebi cannot pass an ex-parte order.
Ultimately, the outcome of the NCLT hearing will determine the fate of the merger and its associated entities.
SEBI replies to SAT
In its response to the Securities and Appellate Tribunal (SAT), SEBI has urged immediate measures against the promoters to protect the management, investors, and other stakeholders from the alleged fund diversion case.
In its affidavit, Sebi declared the applications made by Chandra and Goenka on July 6, 2022, as false and misleading. Sebi stated that there have been violations, along with the issuance of multiple false disclosures.
The regulator highlighted that the submission of statements aimed to cover up the wrongdoings. The show cause notice dated July 6, 2022, pertains to the same issue.
Sebi emphasized the urgency for action to address the alleged fund diversion and misconduct.