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Legal opinion by Justice UU Lalit, former Chief Justice of India, has backed Zee’s position that the merger between the Indian broadcaster and Sony can happen only with Punit Goenka at the helm of the merged entity.
The opinion was sought by some minority shareholders after the Securities Appellate Tribunal (SAT) overturned a ban imposed by SEBI on Goenka for allegedly siphoning off company funds.
According to Justice Lalit, appointment of a new person as the MD and CEO of the merged firm can only be done after Goenka ceases to be the MD and CEO of the merged entity and not before that. In his words, “the very fabric of the scheme cannot be discarded”, this means that the merger scheme will need to be redone to oust Goenka from his promised position as the MD and CEO, as per the former Chief Justice of India.
Legal corollary
The opinion assumes significance in the wake of Sony asking Goenka to relinquish the top job given the ongoing investigations by SEBI. Justice Lalit has said that the SAT’s decision to overturn SEBI’s ban has reinforced his view that there is no embargo on Goenka. “The legal corollary of the order is that the Scheme (merger agreement under which Goenka becomes MD & CEO) as contemplated can and must be given effect to,” states the legal opinion seen by businessline.
Goenka’s role in the merged entity has become a major bone of contention between Zee and Sony which is threatening to derail the $10-billion media merger.
Zee stocks tumble
On Tuesday, Zee’s stock price tumbled by as much as 11 per cent intra day. However, the stock price recovered a tad after Zee issued a statement that the merger talks are still ongoing. Zee’s shares were trading at ₹256 apiece at the time of market closing, nearly 7.86 per cent lesser than its previous closing price of ₹278.15.
Notwithstanding the the official statement by Zee, sources close to the negotiations said the deal is likely to be called off by January 20, the self-imposed deadline to announce the merger.
According to market experts, the chances of Sony acquiring Zee through a hostile takeover is remote given that there are no single large shareholders from whom shares can be acquired.
According to shareholding structure of Zee, DIIs hold around 42 per cent and FIIs hold around 35 per cent but the shares are splintered across various entities. “Sony does not have a reputation to do takeovers of this sort, especially for a company like Zee. No domestic or foreign institution holds large contiguous amounts of equity with Zee that Sony can negotiate with to get a 50 per cent stake,” an expert added.
Another option, according to experts, would be for Sony to offer a pay out or a higher stake in the merged entity to Goenka to walk away from his demand. Under the existing agreement Goenka’s family will own a 4 per cent stake in the merged firm, same as they have in Zee at present.
Two shareholders divested a bulk to Zee stock too. Hriti Private Limited sold 999,443 Zee shares at ₹255.5 apiece. Societie Generale 7.8 million shares for ₹259.1 per share
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