Viacom18 and Zee Entertainment in early merger talks

If the deal goes through, the promoters of Viacom18 could become among the largest shareholders of the combined entity as more than 65% of ZEEL is owned by foreign institutional investors.

Viacom18 Media Pvt. Ltd, the owner of the Colors general entertainment channel, and Subhash Chandra’s Zee Entertainment Enterprises Ltd are in initial talks for a potential merger that could create a large media firm with interests spanning broadcast, OTT, live entertainment and movie production, two people aware of the development said.

Zee Entertainment Enterprises Ltd is founded by Essel Group’s Subhash Chandra (Vipin Kumar/HT File)

Viacom18 is a joint venture between TV18 Broadcast Ltd (51%) and US-based ViacomCBS Inc. (49%). TV18 is a unit of Network18 Media and Investments Ltd, majority-owned by Mukesh Ambani’s Reliance Industries Ltd (RIL). Zee Entertainment Enterprises Ltd, founded by Essel Group’s Subhash Chandra, is majority-owned by foreign institutional investors, including Investco Oppenheimer Developing Markets Fund and Ofi Global Fund China LLC. Essel Group’s equity holding is down to 3.9%, although the company continues to be run by Chandra’s son Punit Goenka.

“The merger of Viacom18 and Zee is proposed to be done through a share swap deal. The talks started a few weeks ago, and the deal is unlikely to involve any cash transaction,” one of the two people cited above said, requesting anonymity.

“If a merger takes place, the combined entity will own and manage the largest number of TV channels and have the largest market capitalization in India from the industry,” the person said. Zee has a market value of ₹21,300 crore. Network18 stock is trading at ₹52.05 and has a market cap of around ₹5,500 crore.

If the deal goes through, the promoters of Viacom18 could become among the largest shareholders of the combined entity as more than 65% of ZEEL is owned by foreign institutional investors.

The person also said that a deal is likely to go through only after the share price of ZEEL moderates by 15-20% from current levels.

The change in management control might prove to be the biggest hurdle to surpass.

“A middle ground has to be worked out by the investment bankers of the two groups,” the second person said on condition of anonymity. “The two parties have to agree to create a content major as a priority rather than looking at their controls in the merged entity,” the person added.