Essel Group may divest up to 50% of promoter share in Zee Entertainment

Essel has appointed Goldman Sachs Securities (India) Ltd as their investment banker

Subhash Chandra, a pioneer in satellite broadcasting in India, is likely to divest a chunk of his stake in Zee Entertainment Enterprises (ZEEL), India’s first home-grown private broadcast network.

The Essel Group, which holds 41.6 per cent in the media and entertainment company, is looking to divest up to 50 per cent of its promoter share (approximately 20.8 per cent of the whole) in the entertainment firm. At today’s value, the promoters' 41.6 per cent stake is worth Rs 175 billion. 

In a statement released to the stock exchanges, the promoters said: “It has been decided to undertake a strategic review of Essel's shareholding in ZEEL with a view to maximise value for the business. 

The proposed transaction to divest up to 50 per cent of Essel’s holding to such a partner, is expected to address Essel Group's capital allocation priorities and will allow ZEEL shareholders to capture the full value of India’s largest entertainment broadcaster with an ever strengthening bouquet.”

Essel has appointed Goldman Sachs Securities (India) its investment banker and New York-based boutique investment bank LionTree, which specialises in mergers and acquisitions, international strategic advisor for this exercise.

Essel expects the outcome of the strategic review to be concluded by March-April next year. 

The changing media landscape, technological advancements and convergence are some of the reasons the promoters decided to undertake the strategic review of shareholding. Chandra and his family, along with advisors, had met during the Diwali weekend to undertake a strategic review of its businesses. The family realised it needed “to accelerate efforts to stay ahead of fast-changing trends”.

The ZEEL promoters identified two main gaps in the business — investment in technology in an era of convergence and access to the global stage. The company is thus focusing on a strategic partner which has a strong presence in the global media and entertainment tech space.

“We hope this transaction will meet the objectives of the Essel Group as well as the minority shareholders of ZEEL …. Regardless of the outcome of this exercise, Essel is committed to create significant long term value in ZEEL,” the statement added.

Managing Director and Chief Executive Officer Punit Goenka said: “While we could have acquired a tech company, it would have taken several more years of investment to catch up and compete with global players. Instead, we feel that partnering one of the leaders will give us better and faster access to their technological capabilities and the global market, while ZEEL in turn can provide the partner access to the Indian market.” He added ZEEL was in talks with potential partners through investment bankers.

Punit Goenka and Amit Goenka, chief executive officer, international broadcast business, ZEEL, are Subhash Chandra’s sons.

The promoters' meeting had noted that with the current 1.3 billion viewers globally and close to 50 million digital viewers growing at a fast pace, ZEEL is well placed to benefit from current market trends due to its strong brand and bouquet of domestic and international channels. Adding to that strength, its OTT platform ZEE5 will further enable the company to leverage the benefits of changing video consumption trends, contributing significantly over the coming years.

The management of ZEEL under Punit and Amit Goenka has been well appreciated by all stakeholders and reflected in the performance of the company, the statement said. Speaking on where the business stands today, Jawahar Goel said: "Punit and Amit have made the right sustainable investments for the future and the business is growing ahead on all fronts in a focused and disciplined way.” Goel, chairman and managing director of group company Dish TV, is Subhash Chandra’s younger brother.

ZEEL reported revenues of Rs 16.77 billion for the quarter ended September 2018, while the net profit stood at Rs 3.77 billion.

When asked if the move to divest promoter stake is also a way to prepare for the emergence of Reliance Jio as a competitor in the distribution and entertainment space, Punit Goenka said, “We have had competitors with deep pockets earlier as well. Fox (Star India) had deep pockets and so did Viacom (Viacom18 in India). This move is more about getting access to global technology and evolving into a media tech company as efficiently as possible.”