Mumbai: SAT has quashed SEBI’s order of barring Punit Goenka from holding key directorship in listed entities over the alleged fund-diversion case.
Our view
Implications of the event
Scenario 1- This may expedite the Zee/Sony merger process; if SEBI gives a go ahead in favour of Punit Goenka, without going to the Supreme Court, post the detailed order that is to be released tonight. In this case, we expect the record date to be announced around last week of November 23. This in turn means that the listing of the merged co. will happen towards the first week of Jan '24. Further, with Goenka coming on Board, there will be no need for any changes in the term sheet, or any Board/shareholder approval required for change in CEO; this also means that business will be as usual for ZEE and lesser transition time with little change in senior management.
Scenario 2- SEBI can also move to the Supreme Court to appeal for a stay against SAT’s order. Further, the SAT order may only mention that Goenka can continue as CEO of Zee or the merged co; however, SEBI’s investigation on grounds of fraud may continue after this relief by SAT. This in turn means that there is still a high likelihood of the merger going through without Goenka. We believe there is a low likelihood of Sony allowing Goenka to continue as CEO of the merged Co, unless the issue with SAT is resolved (in case of SEBI going to Supreme Court). In this case, there may be a delay in the merger too, if Goenka changes his stance and waits for the outcome of investigation; if Sony does not wait, then merger will go through as usual and the merged co will get listed by Jan’24
Change in media landscape – a big benefit for Zee/Sony
With Reliance wanting to acquire Disney, the media landscape on TV/OTT side will see a big consolidation as two large players – 1) TV18/Disney and 2) Zee/Sony could potentially command a market share of 67%/53% (TV18/Disney and Zee/Sony together) on TV/OTT in India; which could shift bargaining power in their favour and help them grow ahead of industry averages, as other players may scale down in the ecosystem
No overhang of CG issues
With Sony coming as a parent company, we expect no CG (corporate governance) issues in the future, which in turn will drive re-rating of valuation multiples for Zee.
The stock has corrected more than 10 per cent from its peak over the last three months post the NCLT approval in Aug’23, citing delay on the merger. We await 1) the detailed order and 2) SEBI’s response on the above judgement order passed by SAT to allow Goenka to be a part of Z to assess the actual impact of the above decision for the merger and Goenka; we have a BUY recommendation on Zee with a Sept 24 TP of Rs 340 – we will await more developments over the near term on above.
Background of the event
• On 12 June 2023, SEBI banned ZEE promoters Chandra & Goenka from holding directorial, key managerial roles over allegations of fund siphoning. On 13 June 2023, ZEE promoters approached SAT against the order following which SAT provided SEBI 48 hrs. to file a reply against ZEE’s plea.
• On 10 July 2023, two weeks of time were provided by SAT to ZEE promoters to file a response against the interim order. Meanwhile ZEE formed an interim committee of senior executives to run operations at the company.
• On 14 August 2023, SEBI asked for 8 months of time to complete investigation of alleged fund diversion by Zee promoters (due to significant red flags in the transactions between Zee and Essel entities) which was again challenged by ZEE on 26 August 2023.
• On 27 September 2023, SAT reserved order on the case after hearing from both the parties.
• On 30 October 2023, SAT quashed SEBI’s order barring Goenka from holding key directorship in listed entities over the alleged fund-diversion case.
The credit of this article goes to Elara Capital SVP Karan Taurani
