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Zee Ent, Sony race to finish due diligence ahead of time

Zee and Sony are racing against time to complete the inspection of books and assets, post which their respective boards will seek clearances from regulatory bodies, including the Competition Commission of India, the Securities and Exchange Board of India and the National Company Law Tribunal (NCLT), two people familiar with the development said, seeking anonymity.

Early completion of due diligence is crucial because Zee can then convene a special shareholder meeting to vote on the deal in the coming months, even as it awaits formal approval from NCLT. Zee wants investors to vote on the proposed transaction as some institutional investors have favoured the deal with Sony over Invesco’s demand for reconstituting the board and removing the managing director Punit Goenka.

Goenka’s continuation at Zee is tied to the Zee-Sony deal getting approved by the shareholders as Sony has agreed to retain him as managing director for five years after completing the merger. “Shareholders can expect to vote on the proposed transaction (Zee-Sony merger) anywhere between six and eight months from the time the deal was announced,” one of the two people said on the condition of anonymity.

“This is because clearance from NCLT takes time, and it will seek shareholder approval for the transaction. Once the due diligence is completed and the boards have sought approvals from all regulatory authorities, there is nothing that stops Zee from asking shareholders to vote on the proposed transaction even as it waits for a final go-ahead from NCLT,” the person said.

KPMG is assisting both the companies, according to the second person cited above.

Separately, Amansa Capital, which owns 4.38% and is the fourth largest investor in Zee, is believed to have communicated to Invesco that it will vote in favour of the proposed Zee-Sony merger whenever the resolution is put before shareholders. In addition, Zee’s third-largest investor, Life Insurance Corp. of India (LIC), which owns a 4.89% stake, is also likely to back the proposed transaction, Mint reported last week.

Along with the 3.99% promoter stake, Goenka can count on the support of at least 13.26% of shareholders for the proposed transaction. But it will still be a tall task for Zee founder Subhash Chandra to retain control as he will have to win the support of at least 75% of the company’s shareholders. On the other hand, Invesco, which owns 17.88% of Zee, needs backing from 7.2% of shareholders to scuttle the deal.

Amansa first bought 2.25% of Zee in the September quarter of 2019. At the same time, Invesco, too, spent ₹3,894 crore to buy a 10.14% stake, in addition to the 7.74% it already owned, to boost its total holding to 17.88%.

Mint could not independently ascertain when Amansa, the Singapore-based fund manager, first picked a stake in Zee.

An email sent to Akash Prakash, CEO and co-founder of Amansa Capital, went unanswered. A spokesperson for Zee declined to comment. Emails sent to spokespeople for Invesco, Sony India and KPMG India seeking comment went unanswered.

“The process (due diligence) has been going on very well, and we believe the earlier stated date of completing this process by 22 December now looks to be a very luxuriant timeline,” said the second executive. “We believe we will be able to complete this process by 30 November.”

“This is a two-way due diligence process, where both Sony and Zee are looking into all aspects like the commercial arrangements, financials, technology-related and tax-related subjects for the last four years,” said the second executive.

Over the past few weeks, both Invesco and Zee managements have held multiple interactions with fund managers and institutional investors. Invesco has hired investment bank Jefferies, while Zee has hired JP Morgan to help them shore up support from institutional investors, Mint reported on 8 October.

A single-judge bench at Bombay high court will decide on Tuesday if Zee should be asked to hold a special investor meeting. However, executives familiar with the issue maintain the legal battle could continue for a few months irrespective of the verdict

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