Subhash Chandra fights to keep control of his $ 4 billion media empire

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Subhash Chandra is no stranger to corporate battles. In 1998, when his then-partner Rupert Murdoch attempted to buy out their thriving five-year-old Indian television business, the entrepreneur deftly fended off the billionaire to regain control of what became Zee Entertainment Enterprises Ltd.

More than two decades later, India’s largest publicly-traded entertainment network is back at the center of a complicated board feud: Chandra and his supporters against Atlanta-based Invesco Developing Markets Fund, the largest shareholder of Zee with an 18% stake.

This time around, the 70-year-old mogul, known for his distinctive black and silver hairstyle, risks losing control as Zee’s outlook improves, with the advent of streaming. His family’s stake in Zee Entertainment fell to less than 4% after pledging actions to reduce debt owed by its larger conglomerate Essel Group. As Chandra’s son runs Zee as CEO, the media mogul is looking for ways to increase his family’s shareholding.

Invesco, unhappy with the way Zee is being run, wants to remove Chandra’s son Punit Goenka from his CEO role, reshuffle the board and find a new owner. Zee shares plunged 50% from a 2018 record.

At stake is a company that controls 17% of India’s media and entertainment market, reaching over 600 million people. Zee also has an extensive library of local language content dating back to the 1990s – an increasingly lucrative asset amid global streaming and cross-cultural hits like “Squid Game” in South Korea. Zee’s own streaming platform is a leader among local players with nearly 73 million monthly active users. Global giants such as Netflix Inc., Amazon.com Inc. and Disney are looking to gain a foothold in India, one of the world’s most promising future viewer pools.

Zee is “a brilliant starting point for any suitor in India or abroad,” said Paritosh Joshi, who heads media consultancy Provocateur Advisory in Mumbai. “Rupert Murdoch saw the value of Zee 30 years ago and made Subhash Chandra his business partner. And the business case remains, as India currently has 200 million TV households, up from 5 million at the time. “

Call found

The Indian entertainment market will grow by almost 30% to reach $ 29 billion by 2023, Ernst & Young estimates. It gives local players like Zee a new appeal. Walt Disney Co. had a very small presence in India before moving to pole position overnight with a 27% market share after inheriting Murdoch’s local STAR channels from its 2019 acquisition of 21st entertainment assets. Century Fox Inc ..

Plus, Zee’s stock is relatively cheaper now. Its market value has halved to around $ 4 billion from its 2018 peak, mired by rising group-level debt and founders pledging shares.

The bitter showdown between Chandra and Invesco has involved a war of words, including the tycoon’s claims that the US fund has a “certain larger design” to take over the empire it founded. Invesco maintained its demand for a shareholders’ meeting to fire Chandra’s son from the board of directors and as CEO, saying the founders of the company got rich at the expense of common shareholders.

Zee has asked a Mumbai court to block Invesco’s convening of the shareholders’ meeting. A verdict is due on Tuesday.

The spat threatens to start a battle for control. After Invesco’s failed attempt to facilitate the March takeover of Zee by Reliance Industries Ltd. – led by the richest man in Asia, Mukesh Ambani – she demanded the ouster of Goenka.

Chandra responded by announcing on September 22 that Zee had entered into friendly merger talks with Sony Group Corp., which has been looking for Indian assets for some time. The terms of Sony’s non-binding agreement, with an exclusive 90-day period, allow Chandra’s family to increase their stake to 20% – terms that defeat Invesco’s goals. Zee said a merger with Sony was the best deal on the table, but it is open to offers from other bidders.

Reliance confirmed that discussions took place with Goenka in March over a “broad proposal” to merge their media operations. The conglomerate said on Oct. 13 that differences have emerged over the role of the founding family and ways in which they could increase their participation. Reliance said it decided not to go any further, adding that “we have never resorted to hostile transactions”.

Zee, Sony and Reliance declined to comment further.

Bumpy road

“For the merger to go through, Zee will need the approval of 75% of its shareholders, which is a mountain in itself,” Nitin Mangal, an independent analyst who reports on Smartkarma, said in a September 27 memo. . “It will be a bumpy road for Zee in the near future.”

If Sony and Zee agree on a final transaction, it would be a big blow for the Japanese giant. That would more than double Sony’s market share in India to around 25%. Its local spray streaming service called SonyLIV could also get a boost.

But it may be too early to proclaim Sony the winner. Reliance can theoretically return to the race if Invesco manages to reorganize Zee’s board of directors, which then seeks new merger proposals. Ambani, whose tech and retail companies have received $ 27 billion in investments, also has entertainment and streaming ambitions.

“If Invesco is able to reconstitute the board of directors, I believe the board will initiate an auction process and select the highest bidder,” said Mohit Saraf, managing partner of the law firm Saraf & Partners , based in New Delhi. “Whether with Sony or Reliance, it’s all about consolidation and gaining market share. “

Rice exporter

Chandra had a knack for making creative deals after his short stint as an exporter of rice to the former Soviet Union in the 1980s. He branched out into packaging materials, established a fleet of attractions outside Mumbai and started Zee TV, when India dismantled the state monopoly on media, bringing cable TV to Indian homes in the early 1990s.

In the fight with Murdoch, Chandra had the upper hand. The business was doing well in part thanks to the Hindi soap operas and Bollywood content that Zee brought to the table. But this time, Chandra is struggling to keep what he has built and nurtured from a position of relative vulnerability.

“I will fight not for financial gain, but for the satisfaction of being honest with millions of Zee viewers,” Chandra told Zee News, her group’s news channel, in an interview at the start of the week. month.


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