Sony Group Corp's Indian unit will buy media giant Zee Entertainment Enterprises Ltd (ZEEL), days after Zee's shareholders asked for a management reshuffle, including the exit of Chief Executive Punit Goenka from the board.
Zee, which has a presence in television broadcasting and digital media, has been under pressure from top shareholders, while proxy adviser Institutional Investor Advisory Services (IiAS) has raised corporate governance concerns.
Sony Pictures Networks India (SPNI) and ZEEL have signed an exclusive, non-binding term sheet to combine the companies' linear networks, digital assets, production operations and program libraries, the companies said on Wednesday.
SPNI did not respond to a query about how much it would spend on the purchase. SPNI will hold a majority stake in the merged entity and invest $1.575 billion in the new operation, the companies said. The majority of board directors of the merged entity will also be named by Sony Group, they said.
"If the deal goes through, we expect the quality of supervision on the management to be greater and it should likely reduce the risks of related party transactions and governance failures," said Hetal Dalal, president and chief operating officer, IiAS.
Hetal said, though, the deal needs to be better fleshed out before investors begin to believe their concerns are quelled.
Both SPNI and ZEEL face stiff competition for Indian viewership from streaming platforms like Netflix, Amazon's Prime Video and Disney's Hotstar.
"The corporate governance overhang of ZEE Entertainment should also fade away with this merger and enhance investor confidence," said Vivek Menon, co-founder of NV Capital, a credit fund for media and entertainment sector.
"The combined entity will be in a superior position to compete with Disney more effectively."
ZEEL and SPNI will conduct due diligence and finalise definitive agreements in 90 days. ZEEL shareholders will hold a 47.07% stake and SPNI the rest of the merged entity.
ZEEL said it will present the merger proposal to shareholders and that Goenka will be the merged company's managing director and chief executive officer.
Shares of Zee Entertainment soared 26% to 321.90 rupees on Wednesday, while those of other group companies such as Zee Media, Zee Learn and Dish TV India jumped between 6% and 19%.