Zee's Merger with Sony at Risk as SEBI's Investigation Clouds the Deal

Zee Entertainment Enterprises Ltd (ZEEL) finds itself in a precarious situation after the recent action taken by the Securities and Exchange Board of India (SEBI). The regulatory body has barred Subhash Chandra and Punit Goenka, key figures in Zee, from holding any directorial or key managerial positions in listed companies or their subsidiaries. In response, Zee has written a letter to SEBI expressing concerns about the potential impact of the ongoing investigations on its merger with Sony Pictures Networks India Pvt Ltd (Sony).

Zee is currently in the advanced stages of merging with Sony, having obtained a No Objection Certificate (NOC) from SEBI. The company highlights that the merger has received approvals from various regulators, stock exchanges, and the Competition Commission of India (CCI). Additionally, 99.9% of ZEEL's equity shareholders have approved the scheme. Zee emphasizes that the continuous and repetitive investigations by SEBI could jeopardize the merger process.

In the letter, Zee states that the transactions under investigation date back to 2019, and detailed explanations have already been provided to the Stock Exchanges and SEBI. The company finds it puzzling why the matter is being re-investigated when the alleged wrongdoing took place four years ago. Zee asserts that it was never privy to the loan arrangements between Yes Bank and the borrowing entities, and there was no privity of contract between Yes Bank, ZEEL, and the borrowing entities. The misappropriation of ZEEL's fixed deposit was solely the result of Yes Bank's unilateral action.

According to Zee, the company has taken necessary steps to ensure the recovery of the misappropriated funds and protect the interests of its shareholders. ZEEL considers itself a victim of Yes Bank's misappropriation and asserts that it has acted in the best interest of its shareholders to prevent any loss.

The news of SEBI's action against Subhash Chandra and Punit Goenka has raised concerns about the potential impact on the proposed mega-merger between Zee and Sony. However, industry experts point out that the promoters' holding in ZEEL is only 4%, and their ability to run the company has been supported by the confidence of the board and shareholders. The proposed merger with Sony has also garnered shareholder confidence.

SEBI's action stems from an investigation into the appropriation of ZEEL's fixed deposits by Yes Bank to settle loans of related entities belonging to the Essel Group. The regulatory body found that Subhash Chandra, the former chairman of ZEEL/Essel Group, had provided a "Letter of Comfort" towards credit facilities obtained by certain group companies from Yes Bank. The existence of this letter was known to only a few individuals in the management, and even the ZEEL board was unaware of its existence, according to SEBI's order.

SEBI's order suggests that Subhash Chandra and Punit Goenka abused their positions as directors/key managerial personnel of a listed company for personal gain. Yes Bank adjusted a fixed deposit worth Rs 200 crore belonging to ZEEL to fulfill the obligations of seven associate entities, which were found to be owned or controlled by family members of Chandra and Goenka, as per SEBI's findings.

As the investigation continues, Zee's merger with Sony hangs in the balance, adding further uncertainty to the future of both companies.