Sebi interim ban on Zee Entertainment promoters could impact Zee-Sony merger

Securities and Exchange Board of India’s (Sebi) decision to ban Essel Group Chairman Subhash Chandra and Zee Entertainment Enterprises’ Chief Executive Officer Punit Goenka from holding any directorial or key managerial position in listed companies or their subsidiaries, has raised concerns on the proposed mega merger between Zee and Sony.

The ban comes on the back of a Sebi investigation that found that Chandra and Goenka abused their positions as directors/key managerial personnel to siphon off funds for their own benefit.

How the Zee-Sony merger, intended to create a media behemoth, will progress is a potential area of concern. According to Ashish Kumar Singh, Managing Partner, Capstone Legal, it is important to understand that with only a 4% holding in Zee Entertainment Enterprises (ZEEL), the promoters enjoy the confidence of the board and in running the affairs of the company. “Besides, the shareholders have reposed confidence in the proposed merger with Sony.”

Investment bankers told BT that many issues would have been laid out by both the parties at the time of the merger discussions. “This too would have come up then,” said one tracking the sector. 

“In terms of options available now, ZEEL’s promoters can challenge it right away by going to SAT or the high court. There is also a possibility that Sebi might modify the interim order,” points out Singh. Specifically on the Sony deal, he says, “From a legal standpoint, there is not much cause for concern, but from a practical point of view, it is a setback because the new merged entity cannot have Punit Goenka holding any key managerial position.”

Meanwhile, Zee Chairman R Gopalan said, “The board is currently in the process of reviewing the detailed order and appropriate legal advice is being sought in order to take the next steps as required.”