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A Media Frenzy - Zee feat. Sony ⏭️

The proposed merger between Sony and Zee isn’t a done deal yet. But some shareholders will be pretty pleased.

This is edition 377 of Beyond The First Order, a premium daily newsletter that demystifies the hidden models, incentives and consequences of the most significant events across India and Southeast Asia

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Good morning,

This edition is all about partnerships. Between,

  • Zee Entertainment and Sony Group
  • A basketball team and the new world of crypto and NFTs
  • Saudi Arabia and investment bankers + former treasury secretaries

Grab your beverage of choice and let’s get the Friday started. 

Who wins in the merger between Sony and Zee?

The merger between entertainment and media companies Sony and Zee has divided the world into two camps:

  1. The Twitter camp that said the deal stinks 
  2. The shareholder camp that gave it a big thumbs up 

There’s a lot to unpack here and the story is far from over. So, let’s do a simplistic recap as to what led to this. But be warned, there are more questions than answers. 

Anyway, there is this one man—Subhash Chandra—who set up the Essel Group. The entity had many business interests. One of which was media and entertainment through the Zee network, and another in the infrastructure space. While the Zee journey started in 1992, the group hasn’t quite made a name for its clean business practices over the past few years.

Here’s something from November 2019: ‘Two ZEEL directors quit citing concerns over corporate governance’.

Anyway, the mess that the infra company made by excess borrowing meant that in 2019, the promoters (read Subhash Chandra and family) had to sell a part of their stake to a US-based investor Invesco Oppenheimer Developing Markets Fund. Now Invesco had been an investor in Zee since 2002 so it wasn’t someone who was completely unaware of Zee’s operations. But after the sale, it ended up with close to an 18% stake in the company. And the promoters’ stake ended up at around 4%. 

While Subhash Chandra stepped down as Chairman (due to regulatory reasons), his son Punit Goenka continued as the CEO of Zee Entertainment. 

Until this week. Well, almost. 

On 11 September, Zee Entertainment disclosed in a filing that its investors—Invesco Developing Markets Fund and its subsidiary OFI Global China Fund LLC which, together, own slightly over 18% of the company’s stock—sought to remove Punit Goenka, Manish Chokhani, and Ashok Kurien as directors. Invesco was clamouring for an extraordinary general meeting (EGM) to put its new plan in motion. 

On 13 September, another statement by Zee said that Chokhani and Kurien had resigned. There were whispers of them being involved in insider trading. Corporate governance!

Zee Entertainment’s share price jumped by 40% following these news bytes. Ouster of the people at the top to clean up the corporate governance stink that had plagued the company seemed like good news. Professional management for the win!

But, why did Invesco, which has been a shareholder for close to two decades,  suddenly have a problem?

On the business front, the company’s stock was at an all-time low when the market was at an all-time high. This dichotomy became difficult to explain and Invesco, which had a new leadership decided to sever ties with Zee. “To find a buyer, Invesco needed to first sort out the governance issues and put in place a professional management,” says the media industry professional.

While that almost seemed like the end of the story, on Wednesday, a bigger piece of news to displace all that had happened previously emerged. 

Sony Group Corp’s Indian unit and Zee Entertainment announced a potential merger that would create a media empire. Not an acquisition, but a merger.

Now one would imagine that the deal has been in the works for a while now and isn’t hastily put together. Zee Entertainment has been on the block for the better part of at least two years, and Sony was a potential suitor at that point. Maybe Invesco’s activism activated the deal again? 

Under the new arrangement, Sony will pump in more money and keep the majority of the merged entity. 

For now, the promoters only hold 4% stake in the company, which will fall further after the merger. So they really aren’t in a position to bargain

According to Zee Entertainment’s disclosures and BloombergQuint’s calculations, Sony will initially get 55.04% stake in the merged company. The Zee promoter stake will fall to 1.88% after the merger.

But… they must’ve bargained.

Sony India promoters will then transfer shares to Zee Entertainment promoters as part of a non-compete fee. The transfer will help the existing promoters to retain their holding at 3.99%.

And then they get the option to raise their stake to 20% over time.

So now, from just a week ago when Invesco wanted Goenka out, he could be back heading an even bigger entertainment empire. A deal that seems to have the promoters of the Essel Group quite firmly entrenched in the entity. 

But here’s a contradiction. The share price jumped by 40% when news of Punit Goenka’s ouster emerged. And even when his possible continuation was announced, the share price jumped by 20%. Is it only that even if Goenka remained, his wings would be clipped under the new Sony ownership? Or is there something else?

Which takes us back to the two points I made at the start. Twitter folks are crying foul because they believe that some sort of insider trading has led to the share price shooting up. Here’s Sucheta Dalal of Moneylife:

Those who have tracked the capital market for the past three decades see a lot of perplexing connections between three people who are close to each other – Manish Chokhani exiting the board; Rakesh Jhunjhunwala investing 1% in the company a day before the merger announcement; and Vallabh Bhansali making a rare TV appearance to call ZEEL-Sony a future blue-chip. Unfortunately, unless the regulator digs up something using its vast powers and tech resources, these questions may never be answered.

For now, while it initially appeared that Invesco, or the activist in this drama, had the upper hand, it seems like the winner could be the promoters of the Zee Group and certain other shareholders. 

It’s getting hotter and hotter in the crypto-sports space

The Philadelphia 76ers, a team playing in the United States’ National Basketball Association (NBA) league, has a new jersey sponsor. Quite mundane in the world of sports, but this deal is quite significant. The logo that will go onto the 76ers’ jersey is that of Hong Kong-based trading platform And the multi-year deal is reportedly one of the five largest in the NBA, at over US$10 million annually, reported Sportico, which was founded in 2016 and has more than 10 million users worldwide, has been on a roll this year. The 76ers tie-up is its first in the NBA, but the Hong Kong-headquartered firm has struck major deals this year in Formula One (US$100 million), the Ultimate Fighting Championship (US$175 million), and with football club Paris Saint-Germain (undisclosed amount). It also has deals with the Aston Martin F1 team and the National Hockey League’s (NHL) Montreal Canadiens. The company has sealed partnerships with sports brands worth over US$400 million in total, reported Bloomberg

Cryptocurrency firms are increasingly taking to sports, with the hope of reaching a wider base of customers. And it’s not just about visibility. Apart from the logo on the jersey and the launch of a non-fungible token (NFT) series featuring the 76ers, will also educate Sixers fans about cryptocurrency.

There are various ways in which crypto firms can leverage their partnership with sports teams and organisations. We’ve already written about fan tokens and how they could potentially be a problem (BFO #350). But with sports media companies starting to create new roles like “head of cryptomedia”, it’s clear that the intersection of crypto and sports is going to become increasingly busy in the months to come. 

What about India, you ask? Well, you must have seen the ads by various cryptocurrency exchanges while watching cricket matches in the last few months. Since cryptocurrency is still not a legal tender in India, the industry is still nascent. However, things are changing. 

On Wednesday, the Indian Super League (ISL), India’s premier football league, announced a partnership with London-based digital collectibles platform Terra Virtua ahead of the 2021-22 season. The ISL is India’s first sports property to sign such a partnership. Terra Virtua will create unique digital collectibles featuring the ISL and all its teams for fans to purchase. 

Remember those player cards you used to collect as a child? Soon, you’ll be able to buy virtual cards featuring your favourite player scoring a worldie. 

Your move, IPL.

Saudi money talks

Here are two stories about Saudi Arabia

The first

If you’re an investment bank, it’s not a happy tale. It doesn’t matter how hard the banks are trying, the Saudis just aren’t parting with their money. 

Despite attracting $125 billion in orders from investors for an initial public offering of Saudi Telecom Co.’s internet-services unit, banks including Morgan Stanley and HSBC Holdings Plc are set to share just about $12 million in fees, Arabian Internet and Communications Services Co., also known as solutions by stc, said in its prospectus.

That’s just 1.3% of the offering value, compared with an average of about 5% or more for IPOs in the U.S. or Europe.


Wall Street heavyweights like JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. have still flocked to the kingdom, hiring teams on the ground and sending in their top executives to sway local officials in the hope of winning advisory roles.

Now Saudi probably isn’t even the most favourite spot for Wall Street execs to visit—there’s no alcohol (at least legally), and the weather isn’t like New York.

So while Saudi isn’t making as much money from oil anymore, government officials and private companies can probably go back to their bosses and talk about how they’re stringing Wall Street along and getting freebies and capital market services at dirt cheap prices. They’re probably sitting in one of their palaces laughing at the foolish American bankers who keep hoping that one day the Middle Eastern country will open its oil-fattened purse. 

The second

Meanwhile, if you’re launching an investment fund which could make more money for the Saudis—not pay money, but make—they’re willing to part with it temporarily. 

The beneficiary is former treasury secretary during the Trump administration, Steven Mnuchin, for whom a lucrative private sector career is beckoning again

Steven Mnuchin has raised $2.5 billion at his new private equity fund, according to people familiar with the matter, attracting investments from sovereign wealth funds in the Middle East, including Saudi Arabia, where he traveled extensively as Treasury secretary.


This summer, Mr. Mnuchin opened an office in Tel Aviv, and he has raised money from Saudi Arabia’s Public Investment Fund.


The scale of Mr. Mnuchin’s fund and its investments from countries where he traveled as Treasury secretary have raised questions about whether he used his government role to enrich himself.

Pretty neat isn’t it? Join public service. Use the opportunity to cosy up to people who have the money—like Saudi. Because you can always say that a meeting was for ‘diplomatic’ reasons when in fact you’re negotiating the terms of your new private equity fund. 

To be fair to Mnuchin, he did have a career as an investment banker at Goldman Sachs before being tapped for the government. Or, maybe his brainwave came because he realised he’ll make more money from the Saudis this way? 

Either way, Saudi money talks. 

That’s it from us for this week.

Write in to us with your thoughts and observations on the reshaping of businesses, societies, and economies. We will see you on Monday.

Stay safe,
[email protected]

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