Zee Entertainment Enterprises Limited (ZEEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Zee Entertainment Enterprises Limited Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. [indiscernible] Thank you, and over to you, sir.

Thank you, [ Mahindra. ] Good day, everyone, and welcome to today's discussion in connection with recent corporate development. Hope you all are well and taking good care of yourselves. We have with us today, Mr. Punit Goenka, our MD and CEO, along with senior management of the company. We will start with a brief statement from Mr. Goenka and subsequently open the floor for Q&A. Before we begin the call, I would like to remind everyone that anything we say during the call that refers to our outlook for the future is a forward-looking statement and must be taken into conjunction of the risk that we face. We would limit today's discussion to the announcement for the proposed transaction. And any questions related to the performance of Q2 results should be reserved for another time when we get together to discuss your comments. We will begin now. Thank you, and over to you, Mr. Goenka.

Thank you, [Ashod.] Good evening, everyone. Firstly, I would like to thank you all for convening at such a short notice. I'm glad to share a key update with all of you pertaining to the proposed merger between Zee and Sony Pictures Networks India, which will create the largest media and entertainment company in India across languages and zones. As you all are aware, the media and entertainment landscape has been ever evolving, not only in India, but also across the globe. As a result of this rapid digital transformation and changing consumer habits, as an industry leader, Zee has consistently delivered strong growth, beating market estimates and staying ahead of the curve. We have also made significant investments into our businesses, particularly in content and technology. This has enabled us to swiftly adapt to the changes in the sector and deliver comparing entertainment offerings to our consumers. In line with our ZEE 4.0 strategy, we continue to evaluate newer avenues and growth opportunities to maximize the value for all our stakeholders and have taken key steps to transform into a future-ready organization. In this context, our Board of Directors reviewed the proposal from Sony Pictures Networks India, and the company has signed a nonbinding term sheet with Sony to merge our businesses in India. Sony is one of the world's most prominent business groups and has a strong understanding of the global media landscape. It enjoys a leadership position in its consumer vertical, including gaming, music, pictures, entertainment and electronic products. The group has a market cap of over $135 billion and an overall revenue of over $85 billion. In India as well, Sony has been a formidable player in the media and entertainment sector and with the proposed interest and investment, I reaffirm the strategy to significantly grow the business in this country. As you would know, Sony Pictures Entertainment has a strong global franchise with high-quality content and innovative technology-led solutions supporting the business. They have a successful entertainment, sports, kids and English speaking franchise in India, which is complimentary to our entertainment portfolio. We have successfully engaged with the global leadership team of Sony on several occasions in the past and we have a great working relationship with them. The current proposal is a culmination of several months of discussions, which has now led to the definitive steps being undertaken on both sides, including the due diligence process and the necessary documentation. I would like to highlight the key aspects of the proposed merger. Zee and Sony India will together form the largest media and entertaining player in India, and become a market leader across genres and languages commanding over 1/4 of the market share in the leaner space and a scale closer to $2 billion in revenue. As part of the merger, Sony will infuse $1.6 billion cash as growth capital, which will enable the merged entity to accelerate its digital platform growth and significantly invest in premium content, including sports. Based on the indicated initial merger ratio, post the infusion of cash from Sony, the shareholders B will hold a 47% fixed. This remains subject to satisfactory completion of due diligence and an independent valuation exercise. ZEEL and SPNI &I have entered into a nonbinding term sheet, which provides an exclusive period of 90 days during which ZEEL and SPNI will conduct mutual due diligence and finalize definite agreements. Sony will also come on board as a promoter in the merge entity, and will have the right to appoint majority Directors of the Board, which will manage and control the business and affairs of the company. I will continue to serve the merged entity as the Managing Director and CEO subject to necessary approvals. Our proposed model is bringing tremendous synergies between the 2 companies that will exponentially grow the sector and boost business growth. This is a major step in line with ZEE 4.0 transformation journey that we embarked upon last year and is expected to generate significant value for all the stakeholders, including our customers, employees and shareholders. On that note, we can now commence the Q&A session. Thank you very much.

[Operator Instructions] The first question is from the line of Abneesh Roy from Edelweiss.

I have 3 initial questions. So first is, Punit, you had sold the sports business in fact to Sony a few years back. What would be your thought process now on sports, given you will continue to remain MD? Second is MD for 5 years, is there any terms, conditions attached to it? Third is raising stake from 4% to 20%. Again, could you clarify any conditions? How does it work? Any guidelines for this?

Yes. So on the sports business, yes, you are right. We have sold the Ten Sports franchise to Sony about 5 years ago, and it does come back into the merged entity, back to us. I believe a lot has changed since the time we sold the sports business. The digital landscape has gamed the ecosystem completely for monetization of sports. And therefore, this represents a good opportunity for the combined entity to really reenter the space in a far more gusto manner to enable further growth for the entire sector itself. So I'm quite excited about that going forward. I always maintain that sports is about properties and the key properties that are going to be profitable going forward are the ones we will be looking at jointly as the Board. The conditions for my appointment, of the MD-ship is the same as what has already been approved by the shareholders of Zee. There is no change to that. Any change in the remuneration would be subject to board approval and shareholder approval, whatever necessary requirements are there. On your last question about the 20% stake, our stake potentially can go up to 20%. It is not conditional upon anything. And again, it will be subject to the necessary approvals that will be needed for us to increase that stake.

One final question. So in terms of approvals and time lines and on the AGM called by the Maruti shareholders on big banks, taking both into account, what would be a logical way, if you could tell us that?

I would request Subash to answer that.

So these 2 are different things. Today, we are talking about the deal. And this deal will follow the due course or the normal process, which is followed in a merger scheme. So there is going to be, we are entering -- we have entered into an exclusivity with other party for 90 days wherein the company, conducting our due diligence. So that we will be taking the scheme to NCLT and CD. And of course, the shareholder approval is acquired. So whatever time line is required to meet all this and to get all these approvals will be followed.

And CCI approval also should not be the problem, yes?

CCI approval is again a part of the process. Let me say that, in our internal assessment is that it will not be a problem, but then I don't want to stick my neck out and speak more than that. But yes, it's a part of the process.

You may have to sell some channels? You sounded a bit cautious?

No, not cautious. It's just that it's a regulatory approval and I don't want to say definite things, but I don't think there will be a problem about that.

The next question is from the line of Jaykumar Doshi from Kotak.

Do you see any risk to this deal in terms of any disagreement with -- on terms or conditions between Sony and Zee? Or and if you can also share some light on how do you see Competition Commission looking at the Hindi market or Hindi market, would they be looking at market share in our -- at state level or at the national level? And what are your initial thoughts in terms of?

Jay, this deal has been arrived at with Sony after months of negotiations and preparation. And I think we have a formidable real deal on the table today. Of course, it is subject to regulations and the necessary documentations that needs to take place. But beyond that, I don't see any other risks to this transaction. In terms -- sorry?

Sorry, just a follow-up there. Can share-swap ratio change post due diligence? Is there any headroom for that, some changes? Or it's...

So yes, so we have given an indicative share swap ratio today basis are very fair assessment of the business of Sony plus whatever has been advised by the advisers. So we are pretty comfortable with the share swap ratio, which we have disclosed. Of course, everything is subject to due diligence and we'll come back with the final numbers once the due diligence is done. But we are fairly confident it should not really be way off from what we have to discussed.

Sounds good. Sorry, Punit, you were perhaps responding to CCI competition question.

So CCI norms are different for different sectors, Jay. In this scenario, I think it will actually be a national level evaluation and not a state level evaluation, and that's my initial assessment of the situation.

Understood. And in response to the earlier question, you mentioned that subject to necessary approvals, the promoter finally can increase the stake up to 20%. So is there a possibility or going to be some kind of call options that the family would have to buy these shares? Or will it be approvals needed for procuring -- purchasing shares from the open market? So is there going to be any call option or any warrants or potential?

No, Jay, nothing has been decided right now. I think it is a condition that we have mutually agreed that the promoter family or the current Zee promoter family can increase their stake up to 20%. That's the basic thing, subject to the necessary approvals for any scheme that we choose to go for.

Okay. So both the options are open. It can be open market as well as it can be some kind of preferential allotment or?

We are definitely open right now, Jay. Nothing has been decided.

Perfect. One more question, if I may. In terms of USD 1.575 billion will be the capital infusion by Sony. And over and above that, I think the Zee's balance sheet is about $50 million of cash. So how do you think this $1.8 billion is a significant amount in terms of capital. So the idea of having such a huge sort of raising capital at this stage, is preparing for stepping up investments in the sports business? Or is it going to be more for the changing platform?

So our primary objective, first and foremost, will be on the growth of the company overall. Whether that will be for the digital business or the sports business, that's the new board of the merger will decide whether to be taken on priority.

Understood. And I know it's early, but would it be possible to give some broad color on the cost synergies or revenue synergies that -- at very broad level?

Very early to talk about that, Jay. But generally, if we look at the global market in this kind of merger that have happened, the synergies are generally in the range of 6% to 10% On the revenue side, the cost technically minute. I think we should focus more on the growth aspect rather than cutting costs.

The next question is from the line of Vivekanand from AMBIT Capital.

Just to understand the deal better. So would you have the number handy of how much Sony, how much cash does SPNI currently have? And how much fresh cash capital they will need to infuse? And secondly, with respect to the cash balance, is this USD 1.575 billion over and above the USD 200 million that we already had, so the cash balance will increase to around USD 1.8 billion. Is that the right way to see it?

So I think first and foremost, the cash balance that the company really has is about is $170 million as of June 2021. The cash we brought in by Sony will be $1.575 billion, over and above $170 million. So that is -- your understanding is correct. the cash price is currently -- Sundharam, do you want to answer it?

I mean, we appreciate that we are under confidentiality with the other side, so we cannot disclose the numbers. And the numbers are no allowed t in public. But yes, the principle is that the need to infuse or as a part of the merger, they need to bring along $1.575 billion in order to reach the percentage which they have taken.

My second question is a bit of a follow-up on the synergy question that Jay asked. So among the 3 revenue line items, advertising, subscription and international, Punit, in your view, which has the greatest scope for synergies contributing to the 6% to 10% synergy that is outlined? That's the general observation?

So in terms of priority, I will put it at advertising and subscription and then international.

Okay. Right. And last question is basically on the subscription side, the domestic subscription market. Do you think that the regulations, the NTO 2.0 did that have any bearing at all on the potential synergies that you can extract due to this merger?

Very early to say that. I mean that's something that has to still play out post merger happening. But certainly, on the digital front, we have enormous synergy on the revenue for subscription. On the linear side is something that we will still play it out.

The next question is from the line of Sanjesh Jain from ICICI Securities.

Just first question on [indiscernible]. Can you just highlight on the channels to the [indiscernible] we have. I understand we don't have much of an overlap. But Hindi, we will be ended up having more than 6 channel. And again, in the Hindi [indiscernible] will be having the [indiscernible]channel. This rationalization in channel could be -- is 1 of the things from the card, which could helps us save a lot of costs on the channel operation and is there any thought on that?

So on the -- see, the channel rationalization is a very -- discussion for a very later date because each channel has their own unique viewership also, and their own unique programming. So I want to be very careful in evaluating whether rationalization of the channel needs to be done and how is it to be done. Because at the end of the day, for us, maximizing the reach and the viewership remains to be utmost criteria. You will appreciate that even on the Hindi movie side, Sony operates with their own unique library and we operate with their own unique library. So there is a -- there may be an overlap, but we do have distinct content properties that exist. So it's not a question I can answer within just 1 day of announcing the deal, but this will require a lot of deliberation by the joint company and the joint board to come to a final decision.

[indiscernible]

I'm sorry, Mr. Sanjesh, your voice is breaking. Can you please check?

Can you hear me now?

Yes. This is better. Please go ahead.

Sorry. Just -- I wanted to pick up on the channel rationalization and the thought process near -- there was really not looking at the number. Does this expanded portfolio , do you see any scope for it?

Sanjesh, we lost you. We can't hear you.

Maybe I will come in between. I have an issue with the connectivity.

The next question is from the line of Arun Prasath.

My question is on this, the $1.5 billion, that fresh money, which will be coming in. So they do have a simple background level of completion, it means that to generate -- both the companies are more or less generating similar ROCs on that. And that means, at this $1.5 billion where -- if we have that invested, you need to generate additional $1.5 billion -- sorry, close to a large amount of revenue over the next 2, 3 years to justify or to ensure that the ROCs are not diluted. So do we really have this kind of opportunity in the near term to invest this immediately? Or what exactly are the where the exact terms that we used?

Certainly, I believe there is a huge opportunity in India, both on the business side, media side as well as the sports business that we talked about. So there is an opportunity here to really encash on. And certainly, given that the prudence of Zee will remain in our DNA going forward as well. So we will maintain our ROCs, et cetera, that we need to deliver to shareholders. We would not just keep cash for the sake of keeping cash, we'll really make it work and earn the returns for the shareholders. Unfortunately, I can't elaborate more on this call today wit you but as time will pass, we will keep sharing our plans with you just as we have done in the past.

And a lot of markets are overlapping. Is there any plans to shut down some operations line of any of the entities so that the synergies can be better utilized, can be derived?

I think the overlaps are largely in the Hindi-speaking markets of GEC and movies. And I was just -- as I was explaining earlier, that the overlap is there, yes, but also the distinct content that exists on the 2 platforms is very different and exclusive. And therefore, our objective will be to maximize viewership, so that we can don our revenue synergies rather than just taking calls of shutting channels or shutting down businesses. So it's going to be a very detailed analysis and decision that merged co-board will make once these 2 entities come together.

Sir, just 1 last question, if I can squeeze in. Do you think or expect the open offer needs to be given to the minority shareholders? Or how far do you expect the things to proceed?

Yes, this is -- we are talking about a merger scheme out here. So no open offer is applicable or required in a merger scheme.

Sorry, can you repeat? I couldn't hear you.

It's a merger scheme which we are talking about here, and no open offer is required in a merger scheme.

So no minority shareholders needs to do any kind of [indiscernible] on that point?

Yes, that is our response.

The next question is from the line of Sachin Salgaonkar from Bank of America.

I have a couple of questions. The #1 question, Punit, your family shareholdings is getting diluted in the transaction from roughly 4% to 2%. Any thoughts of increasing that further immediately after the merger?

Sundharam?

So as a part of their deal, there is a transfer of certain stakes which would happen from Sony to the promoters and that is -- that will go so that the promoters don't enter into a conflicting business. So the resulting shareholding post this transaction for the promoter is going -- the existing promoters is going to be 4%. But just to make it clear, companies are not going to pay to the promoters anything. This is a transfer from Sony to the promoters.

At what price?

No, this is not a price. This is a transfer in lieu of the family not entering into a conflicting business.

So the family's shareholding will be 4% immediately after the merger.

That's right.

Subject to shareholder approval.

Of course, yes, everything is subject to the required approvals.

Second question is, has your AGM been called off or you guys are looking to sort of schedule an AGM in the coming days?

Not at this call we have kept for this discussion. And we have made the requisite disclosures on the notice for the AGM received from the minority shareholders. And as and when required, we'll be making requisite further disclosures on the sale on that matter.

And coming to [indiscernible] stand now, do we need that AGM or that is going to be completely called off?

I can't comment on that, so.

The next question is from the line of Naval from Emkay Global.

A couple of questions, Punit, first. In terms of 2 brands now, is there any specific time line till when it will be operated as a separate identities or kind of companies, and eventually, it will get merged that way? Second, as you are saying that focus is on maintaining or increasing the reach and not on channels rationalization. But there would be some obvious channels which will get kind of rationalized automatically, and it would also imply cost benefits also like and TV was more of a comedy point of view, where they have sub which is a strong channel. So on and so forth, there will be a lot of channels that way or tail channels, which doesn't give you much of revenues, but somewhat extends to the bouquet, but now in merged entity, how do you view that?

As I said earlier, Naval, I'm again repeating that those calls will be made by the merged co-board when that merger happen. Until then, status quo remains. Any merger [indiscernible] report through the NPLT process merger. It does take its due course of time. And until then, status quo will be maintained. Post merger, we will take those decisions as to what is the optimized way of running the merged company.

And second, are there any agreements or will there be any agreements in terms of CFO coming from Enterprise Sony or head HR appointed by Zee or something of that sort? Will it be mix-match of that things or that is also still not on cards or not yet decided?

No, those are all parts of the definitive agreement negotiations.

And thirdly, with this, do you see some competitive intensity getting rationalized on both OTT and underlying broadcasting business and somewhat benefiting industry on cost aspect?

I would certainly believe that this will benefit the industry overall because consolidation always helps the industry, all aspects of it. So therefore, it will certainly have an impact there. But competition has been intense in this country from the last 30 years since we have started operating. I don't see that going away for next 30 years at least. We had provided for 30, we'll provide for the next 30 years.

The next question is from the line of Ankur Periwal from Axis Capital.

Punit, so sorry to harp on the sales quite a bit. But the incremental $1.5 billion coming from Sony, plus our internal accruals which we will accrue over the next couple of years. From a capital allocation perspective, you have earlier mentioned of aggressive content investments across TV, digital, as well as on the movies front. Will there be a region in that thought and probably the new Board, which will come along with Sony representation, will have a fresh call on it? Or all of the earlier strategy continues and things will be incremental thereafter?

I think my belief in my earlier strategy has not wavered. I will, of course, be putting that to the new board of the merged co. And now with this merger also bring with me the opportunity of the [indiscernible] bouquet as well as sports bouquet which we did not have earlier. So I'm sure the Board will have to take a call on what the capital allocation is going to be going forward.

Sure. And from a management roles perspective, while we will be leading the team there, but there will be probably some overlaps between the 2 assets since they are running as independent organizations earlier. Any thoughts there on how the music is going to happen? Or probably it's still probably slightly -- it will take some time for those things to be certified?

Ankur, it's not even been 24 hours. Give us some time before we can start answering these kind of questions.

Sure. No, where are we coming from was, as you're earlier discussing from a cost synergies, revenue synergies perspective. And as you rightly highlighted, from a consolidation perspective, there could be an improvement not only in the revenue line but probably significantly improvement in the cost side as well. So this is where I was referring to.

I completely agree with that, And certainly, as I have maintained that I will first attack the revenue synergies before attacking the cost synergies. Our first objective will be to increase and optimize revenue for this combined entity and then look at the cost line.

Sure. And lastly, if I got it right on your -- the promoter family stake will reach from 4% to 20%, there is no structured proposition right now. It's more a work in progress and probably we'll get more clarity later on when the intent is clearly there?

That's right. That's right.

The next question is from the line of Yogesh Kerri from B&K Securities.

So can you tell us about the broad continuations that went on to the -- deciding the merger ratio? One aspect is clearly the cash infusion from Sony? But apart from that, can you just talk about how each company was valued at least on relative terms?

Yes. So we have determined the relative valuation basis of framework in which what we have factored is a fair assessment of each other's business, number one. Number two, whatever is there in the public domain of each other, are -- is a lot more there. And third, the assessment of the advisers to both the company. So we have factored all these 3 into it and then came up with this merge ratio.

So to simplify -- I mean, if you look at in terms of any valuation multiple. So can you give us -- confirm that the valuations of Zee are at least as par with Sony or how is it?

As I said, again, we have looked at the relative valuations, and we have come up with this number. Whatever ratios we have given, there is a cash figure, there is information enough for you to make your own assessment. But right now, this is what we have disclosed and now we are entering into a due diligence period. Post due diligence will come out with more information.

So this 1 -- so this proposal will go from a shareholder approval at some stage. So could you just confirm this would require any ordinary resolution or a special resolution?

So 3/4 majority is required for it to pass through.

And finally, so what is your estimate regarding the time line in which this transaction could be completed in a -- discussed level?

Yes. I mean, going by specifically any merger still takes 7 to 8 months or 6 to 8 months, and that's our estimate also for this.

The next question is from the line of Pratik Rangnekar from Credit Suisse.

Just had a clarification on the non-company part. So do the 2% that the promoters will get is from the 52%, 53% stake that Sony has. So they can still go down by that much. Is that understanding correct?

That is correct.

Okay. Right. And just 1 more on the synergy bit. So you mentioned 6% to 10% of synergies on the revenue side. If you could just provide some initial thoughts on why that would be there, maybe just from my understanding, in terms of APAC that the combined reach of the entity will be higher and hence it is more valuable for advertisers or something on that? So is there more to that?

No, that's absolutely correct. It will be at the scale that will get us that much.

The next question is from the line of Nilang Mehta from HSBC.

So just on noncompete, any special approval for that because I recall it historically, there has been incidents where noncompete has not been allowed. So in our case, especially on promoter shareholding is already down to 4% there where non compete is justifiable. So is there approval process around that is my first question.

Yes, an approval process, an approval is required for that, and that's majority of the public shareholders.

And the second question is going forward, if there is a [indiscernible] from the other parties, how will it be presented to the shareholders?

So we will assess as and when those offers are made to us. But you should keep in mind that we have signed a 90-day exclusivity. So anything can only happen outside of those 90 days.

But before, there were no other proposals which are considered by the board? This was the first proposal that was is considered and Sony approached us.

So we keep getting approached with proposals from time to time, both financial and otherwise. We have chosen the best offer that was made to us and proposed to the board following a principal approval.

The next question is from the line of from Sanjeev Hota from Sharekhan Investments.

I wanted to know more on the digital side. Sony has its own app and so does Zee's side, right, and we have newer elements such as gaming coming into the [indiscernible]. So just wondering how the plan would move forward, whether these 2 apps could be separate or is there desire to combine them into 1 app and add additional features to it?

All these decisions will be taken by the merged co-board once the companies successfully merge. And that will be call of the Board went the merger has taken place. Today, we are not in a position to give you any color on how we're moving forward post merger it will happen.

All right. Got it. And if directionally, you could just help us with what the shareholding pattern for the entity would be like? Right now, you have 4% of promoter holding and 96% free float. So post the transaction, what percentage of the total company would be the free float? Is there an indication that you have right now?

Yes. Sundharam?

Yes. So we have given you the merger ratio, and I think you can calculate the dilution of all the shareholders out here, and that will give you the free float estimate also.

The next question is from the line of [indiscernible] from [indiscernible] Life.

Sir, I wanted to understand 2 things, primarily because you said that a lot of things have been taken into consideration. But the point is approximately Sony sizes -- in terms of EBITDA is like 60% of Zee. And Zee is bringing in around $1.57 billion for getting that 52% kind of a shareholding. So -- and that 52% in turn is coming down to 34% because 18% would be given by Sony from its shareholding. So in short, what he is getting or he is looking at the valuation of around much higher than probably what presently we are looking into. So what is the kind of probably the successful merger is 1 criteria. But what are the other parameters or the hurdles which we have fixed for that 18% kind of a stake transfer?

I think you misunderstood. There is no 18% stake transfer. The stake transfer are roughly about 2% only as envisaged in the transaction. Sony will remain a majority shareholder of this company with more than 50% stake.

So Sony is acquiring a majority stake through primary infusion of that cash, plus, of course, the relative valuation of 2 businesses.

What a -- fine. But when we say that due to noncompete and promoters intention to increase that, so what -- whether they would be a infused or purchase of stake from Sony by Zee or they would be transferred based on certain performance parameters, which stakes in? What would be that terms of the process from that 2% or 2.5% would move to 20% for promoters?

So we are talking about 2 different things out there. The first 1 is the transfer of 2% from Sony to the promoters, and that is in lieu of promoter family not entering into a conflicting business. So that transfer is happening from Sony to family, I repeat. The second part, which you are talking about is the increase from 4% to 20%. That is an in-principle agreement between Sony and the promoter that the promoters can, in principle, increase their stake holding through applicable -- whatever applicable methods or waves are there, and they can go up to 20%.

Again, subject to all regulatory approvals.

Now that -- and that can include anything, whether it be a secondary or whether it be a primary infusion by the promoters in the company, whatever they will seek when -- at that point of time?

Sure. And 1 thing probably which you are right about. But the point is this is getting margin [indiscernible] would there be any kind of period when there would be -- a bigger period they would be unlisted for this entity? How does that thing work? Because it's not a reverse measure, which is happening the listed entity?

Currently, I mean, it's just -- we haven't really decided because we need to evaluate a lot many things because we take the final decision of who is merging into what. What we have put out right here is an indication or an intent right now, but that intent is under evaluation.

But there will not be any period when there is no listing.

The next question is from the line of Sanjesh Jain from ICICI Securities..

Just wanted to understand the digital piece of the business within the Sony, do they have any other digital property apart from the entertainment OTT property, which is coming as a part of the -- from the Sony side in the merged entity?

As far as we understand, they only have another OTT platform in the international market called Crunchyroll, which is not part of this transaction.

Okay. Okay. So we will be having a -- and then what is the thought process on the OTT side with the merged entity? I know it's early here, but just trying to understand the thought process here. So we will run to different OTT app or it's better to have a single OTT app? And from the Zee perspective, we have been talking about investing in the technology, will Sony come with that improved technology we were aiming at? And that platform is good enough for us to scale for the next level. Is there any thought on that side of the business?

We have discussed several options with them on the tech side, especially when it comes to the gaming business and the gaming related to OTT, et cetera. But no decision has been arrived at currently. These are all matters which will be decided post the merger.

But this gaming and all will be part of the merged entity and which -- and these IPs will fit within the merged entities. Is that the right understanding? Or we will be talking about licensing it from the Sony parent?

So it's still too early to say what it is going to be. These are all discussions to be had in the coming future.

But fair enough, but we can expect more digital apart from just an OTT app from the merged entity. Will that be assumption a fair one?

Absolutely correct. Yes.

Some on the sports side, if you can give your initial thought process on that because we have been all along maintained that, Zee on its own did not wanted to reenter the sports business. Now with Sony coming up with a very large bouquet of the sports and you rightfully said that sports has an important role in the OTT platform, we will go aggressively in investing in the sports from these levels? And will we be bidding for more sports property from hereon within the India? What's thoughts on that?

Well, certainly, sports will become an area of focus for the merged company. But the decision for aggressively bidding or not bidding will be taken by the board of the merged company as and when the merger complete. Today, there is no specific view as to how we want to address that going forward.

That will remain 1 of our core portfolio and the investment thought process, right?

Absolutely. Yes.

And best of luck for merger and our future.

The next question is from the line of [indiscernible] from [indiscernible] Life Insurance.

Just 1, speaking on clarification [indiscernible] almost 2% stake transfer from Sony to Zee. So the stake 53%, 47% after the transfer of the stake or before that?

40% stake is before -- 47% percentage shareholding is before the stake transfer but the stake transfer is happening to the promoters.

Yes. So effectively current Zee shareholders, including the [indiscernible] we have 49% in the entity.

That's correct. That's correct.

Okay. And secondly, if you can on [indiscernible] about the company to contain them and I think I'm not sure what in the negotiation or due diligence process can leap -- follow up the deal? I -- should shareholders be concerned on that part that some of the technicalities [indiscernible] like what happened in due diligence that should be cautious or concerned about? [indiscernible]

No, I don't foresee anything of that sort happening in the due diligence. We already understand each other's business because we operate in the same sector. They understand our business. We understand their business. The financial and legal due diligence is only to validate what we already know. So we have not really concern on that aspect.

Okay. And lastly can you add some [indiscernible] around culture of the 2 businesses. How different they are or how similar they are? Like their way of working people or other objective or the attraction or the contain side, like how different is Zee in [indiscernible] the organization side?

Every organization has their own culture. But as I say, change is inevitable. So we too shall change to find a new culture of a combined entity.

The next question is from the line of from Jinesh Joshi from Prabhudas Lilladher.

Just 1 question from my side. In the press release, we have stated that a majority of the Board of Directors of the merged entity will be nominated by the Sony group. But how many do we expect from Zee side to be on the Board of the merged entity? Any color you can give on that?

There will be only 1 person from the current promoter family on the board of the merged co, which will be [indiscernible].

Okay. Sure. I have 1 question. I don't know if it might sound a bit repetitive, but obviously, there are 2 brands which are pretty much well-known, Sony and Zee. So post this merger, I mean, will they operate independently? Or do you believe that a new brand might come up and that is how the merged entity will operate in the future?

Jinesh, both brands have the core trends, right, and loyalty followship of viewers. So why would we want to risk that by going in and undoing something that we are already superior at. But does that mean that we will not create a third brand? Sure, we can create a third one also. But I certainly believe that my will, will be to retain both the brands, and continue function the way we are functioning. The organizations will come together and work as well.

The next question is from the line of [indiscernible] from [indiscernible].

My first question was on the structure part. I think that is pretty clear. That one is pretty clear. Secondly, I had a question on the OTT platform. So I think that is also very clear. Last question was on the music area. Do you think that you will be investing like a bunch of cash into the music business because the competitors -- do you think you'll be doing quite well into the music business?

Well, I think we are also doing quite well in our music business. But certainly, the growth capital is for the overall company. And if we find opportunities in the music business for us to invest behind, which do deliver the return on capital that the company looks for, certainly we will consider this. But overall, it's for the entire company, to see and how the capital allocation will be done, again, will be decided by the new board of the merged co.

The next question is from the line of Vipul Shah from Sumangal Investments.

This may sound repetitive, but I just want to get it clear. This $1.575 billion of investment will be a primary issuance in the form of preferential allotment. Is that understanding correct, sir?

So yes. So it's not a preferential allotment. Again, as a part of the composite merger scheme, this cash will be infused into the company -- into the private company of Sony, which will get merged with Zee. And thereby, the resulting shareholding for Sony is going to be 52.93%.

And the cash will be available in the merged entity.

Next question is from the line of Manish Adukia from Goldman Sachs.

I have 2 quick questions, both follow-ups on the previous questions. So in the hyper growth scenario that these promoter shareholding goes from 4% to 20% over time. Sony will still continue to hold more than 50% of the merged entity. Is that understanding correct?

That's up to Sony, what they decide to or not, but we have the option certainly to improve our stake to 20%.

Right. Okay. And the second question, in terms of just the $1.8-odd billion of cash that the combined entity would have, do you have, let's say, a pecking order in terms of, let's say, 3 key buckets, OTT, sports and your core linear television, which are the areas which would see the most amount of investment? And a related question, if you can just talk about the last 6 to 12 months, what has really transpired in terms of the Zee company and for the industry to have aggressively pursuing this merger on both your and Sony 'spart?

Yes. So first and foremost on the capital allocation, again, I repeat, is for the merged co-board to decide how they allocate the capital upon growth areas. Of course, I will make my own recommendations to the board on the basis of it, that we will make. Secondly, what has transpired in the last 6 to 12 months, you see the entire advent of the digital media that has been seen on the back of the COVID pandemic that we have witnessed. And therefore, the need for us to really invest more aggressively behind the digital platform to capture viewership going forward. This is what has made us change our thought processes and go out and look at these opportunities.

Right, Punit. So just based on your answer, I mean, would that then be safe to say that the focus of the cash that you have on the book, at least a large part of it, would be to grow that digital presence for the merged entity?

It will certainly be 1 of the key areas -- focus areas for us.

The next question is from the line of [indiscernible] from [indiscernible]

Can you hear me now? My question to Mr. Goenka. Sir, 1 thing about the deal. Of course, the deal stated that Mr. Goenka will be the MD and key of the merged entity. But what I want to understand is that in case if there's a decision taken against him at the AGM, would the deal still stand? Or is it very much dependent on him being the MD, CEO of the merged entity? Can you throw some light on that? And the second question is, have you reached out to the shareholders, including Invesco in terms of understanding what they think about this particular transaction? Are they on board or not and similar shareholders like LIC, including, have you sort of made an attempt to reach out to those larger shareholders in the company? And third thing is that there's a noncompete clause, as you mentioned, that's part of the nonbinding agreement. Mr. Sundharam Shankar had recently mentioned that he would be looking out for opportunities in the digital content space. Then in that case, wouldn't that clearly have an interference with the noncompete clause of the deal?

So let me take the first one. Sony has made it very clear that the appointment of Mr. Goenka as MD and CEO is an integral part of the deal, and we will be taking this as a composite deal. So yes, this is an integral part of the deal, to answer that. And I'll take the third part of your question before the second one. On the noncompete, we are -- we will be coming out with the exact wordings of what noncompete is until it is definitive, but we are -- whatever typically -- whatever current businesses are there in [indiscernible] they are always and always continue. It's more to do with any future businesses which are not in operation or has not been in with us. And yes, just to make it clear, even with Dr. Sundharam Chandra's statement said that they -- the digital properties will not compete with Zee 's digital properties.

Just as a follow-up, if they are in the same market, sir, I mean, how would you going to say that you don't compete with this? I mean what will be the differentiator in that sense?

Let me again attend that with you, sir. Zee is in the business of entertainment media, right? And digital, as a world, is far greater than just entertainment. And what Dr. Chandra's statement suggested was we're going to look at using digital properties going forward to be built, not competing with Zee Entertainment. That was very, very clear in his statement. So I think his intent has been made clear from that in itself. But the digital world is a very large world. And to say that we will restrict ourselves from that entire digital world will be unfair or any promoter in today's world in time. I'm sure you will agree with that.

Correct. Correct. Got 1 clarification on the answer that you gave to the first question as well. So in a potential situation where shareholders vote against Mr. Goenka on becoming the MD or staying the MD and CEO of Zee Entertainment. In that case, how does this particular transaction shape out? Would you have to go back and again, have conversations with Sony? Then does it put it on a shaky sort of ground as far as the transaction is concerned?

So that's absolutely a separate matter and nothing to do with this deal. This deal will carry on as we take [indiscernible] in the framework of the relevant regulatory requirements or the approvals required and we'll follow that process.

No, no. I'm asking simply because it's been made a part of the nonbinding agreement that Mr. Goenka will be the MD CEO of the merged entity.

So we are -- as I have said, and I'm again repeating it, we are taking this as a complete scheme and Mr. Goenka's appointment is an integral part of this transaction.

Okay. The last question that I asked, have you reached out to larger shareholders like Invesco, LIC as far as this transaction is concerned, are they on board? Are they not on board, what is the situation?

We haven't reached out to any shareholders.

Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I would now like to hand the conference over to Mr. [indiscernible] for closing comments.

Thank you, everyone, for your interest in the company. Should you have any further queries, feel free to reach out to us. Thank you again, and please take good care of yourself.

Thank you. On behalf of Zee Entertainment Enterprises Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.