Would-be acquirers behind Zee Entertainment rumors?

Punit Geonka said he expects more ‘media trials’ as stake sale talks progress

Punit Goenka, the CEO and MD of Zee Entertainment Enterprises and part of the promoter group of the company, said recent controversies involving the promoters have not affected the determination of the promoters to find the right strategic partner for the media company.

Goenka was responding to questions of whether international companies have been unnerved by the spate of rumors and insinuations targeting the promoters in recent days.

The controversies, involving unsubstantiated rumors of the promoters being on the wrong side of the law, are seen as being ‘planted’ by at least one of Zee’s potential suitors to drive others away from the negotiation table and clear the path to a take-over.

Such a tactic of spreading rumors and misinformation is routinely used by companies to unnerve and drive away competing buyers in India, and is considered part and parcel of any big take-over battle.

In case of Zee Entertainment, this is seen as all the more easy as most of the interested parties are international, US-based players unfamiliar with the rough and tumble of Indian corporate battles. These companies also tend to have very little stomach for any such controversies.

Eventually, if the rumors are successful in driving away such suitors, then Zee promoters will have no option but to sell the stake to the very company that started the rumors in the first place, and knows there is no substance to them.

However, Punit Goenka said the rumors and media trial will not force the promoters to compromise on their choice of a strategic partner for their business.

The key factor that decides the choice of a partner will continue to be the partner’s experience in driving a digital business as well as presence across geographies, he said.

“There is no change in focus,” Goenka said in a call today morning.

According to rumors, Zee promoters have received interest from several players from both India and outside.

Among the reported international suitors are US-based companies Amazon, Comcast, Apple and AT&T, and Asia-based Tencent, Sony Pictures and Singapore Telecom. India-based Reliance Industries, led by billionaire Mukesh Ambani, is also supposed to be in the fight. The group already controls TV18 broadcasting group.

Goenka said so far, he has not heard anything about the machinations and rumors unnerving any of the companies in talks. “They understand that media trial is happening at the promoter level,” he said.

Goenka also added that the promoters are going at a “breakneck speed” to complete the stake sale and that the talks with the interested players are “progressing well”.

THE CROWN JEWEL

Zee Entertainment is India’s largest listed media company and the largest broadcasting company owned by an Indian.

The company, along with Rupert Murdoch’s Star India, dominates the Indian broadcasting sector and has reported an enviable set of profit and revenue growth numbers in the last few years, even as the media sector faced strong headwinds.

Subash Chandra, the rice-merchant from Haryana who founded Zee in 1991, controls about 40% of Zee Entertainment and is willing to give up about half of it to a strategic partner without relinquishing all control of the company.

The latest move has been necessitated by loans of around Rs 13,500 cr taken by Subash Chandra and his family in recent years for their bets in the infrastructure space.

The loan exposure has come under stress after the collapse of infrastructure lending company IL&FS late last year. The development made capital scarce in the infrastructure market, making it difficult to roll over loans.

Speaking to investors, Goenka, who is also one of the sons of Subash Chandra, said the strategic stake sale in Zee Entertainment was only one of two options. Besides this, he said, there are also efforts to sell some of the company’s infrastructure assets.

These sale of the infrastructure assets could raise around Rs 8,000 cr.

“But that will take time to realize, and therefore, this second [option] was put into play,” Goenka said.

“We are working on multiple strategies. As an when one fructifies first, all of those proceeds will go towards the payment of these 13,500 cr.”

The promoters are trying to complete the sale of a strategic stake in Zee Entertainment by April, even though they have a stand-still agreement — covering both the principle and interest payments — in place with almost all of their lenders till September.

STOCK MARKET MANIPULATION

The company’s stock has in recent days come under pressure by suspected market manipulators in an apparent effort to drive down the stock price in a systematic way.

Goenka said he didn’t expect any more of the lenders to get unnerved by the “media trial”. However, he warned investors to be prepared for more such efforts, without naming who he suspected of being behind such efforts.

Unnerved by the some of the developments, some lenders have sold 2.3 million shares of Zee Entertainment in recent days. These shares originally belonged to the promoters, but were given as collateral for the loans they took.

With this, the promoter holding in the company has fallen from 41% to 39.09%.

“We do not expect any more pledged selling to happening. In the 100 meter race, we are at the 90-95 meter point right now,” Goenka said.

The sharp fall in the shares benefit the would-be acquirers in multiple ways. First, it scares off some of the competing bidders. Secondly, the fall can be used as negotiating factor to drive a hard bargain as far as the valuation of the promoter stake is concerned.

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