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BENGALURU - Sony's India entertainment unit will buy local rival Zee, merging TV channels, film assets and streaming platforms to become the largest broadcaster in the country and better compete with companies like Netflix and Disney.
The combined entity, nearly 53% owned by Sony Pictures Networks India (SPNI), a unit of Japan's Sony Group Corp, will own popular channels such as Sony MAX and Zee TV and over-the-top platforms ZEE5 and SonyLIV, dominating the Indian TV and streaming market with over 50% market share, analysts said.
The deal will also ease the pressure that Zee Entertainment Enterprises Ltd was facing from top shareholders who called for a management reshuffle last week - including the removal of CEO Punit Goenka from the board - amid corporate governance concerns.
SPNI will invest $1.575 billion in the new entity, which will be publicly listed, the companies said in a statement, without disclosing other financial terms.
Shares in Zee soared 35% after Wednesday's announcement, taking its market capitalisation to nearly $4.5 billion.
"This consolidation will create a positive impact for the broadcasting industry since it will help in boosting revenues of the existing players which was bit subdued on account of over-the-top (platforms)," said Vivek Menon, co-founder of debt fund NV Capital.
India's broadcast industry was ripe for consolidation, especially after the deal between Sony and Viacom 18 fell through, Menon said, referring to scuppered merger plans between SPNI and a joint venture owned by billionaire Mukesh Ambani's Reliance Industries Ltd's Network18 and ViacomCBS Inc.
India, still heavy on direct-to-home TV entertainment, has in the past few years seen a surge of competition from streaming platforms including Netflix Inc, Amazon.com Inc's Prime Video and Walt Disney Co's Hotstar.
The combination of Zee and SPNI will create a combined content platform that can compete with domestic and global platforms and accelerate the region's transition to digital, Ravi Ahuja, chairman of global television studios and Sony Pictures Entertainment corporate development, said in an internal memo seen by Reuters.
The two companies have signed an exclusive, non-binding term sheet to combine their assets, and will conduct due diligence and finalise definitive agreements in 90 days and then present the merger proposal to shareholders, they said.
The majority of directors of the merged entity will be named by Sony Group and Goenka will become the merged entity's managing director and CEO.
A merger should improve management at Zee, said Hetal Dalal, chief operating officer at proxy advisory firm IiAS that had raised governance concerns. Dalal said, however, that investors would need more details about the deal before their concerns are quelled.
(Reporting by Rama Venkat, Chandini Monnappa and Vishwadha Chander in Bengaluru; Editing by Arun Koyyur, Sayantani Ghosh and Tom Hogue) ((ramavenkat.raman@thomsonreuters.com; https://twitter.com/ramavenkat0607;))