U.S. Investment Fund Acquires Additional 11 Percent Stake in India's Zee Entertainment

Zee Entertainment CEO Punit Goenka - P 2018
Courtesy of Zee Entertainment

Invesco Oppenheimer Developing Markets Fund beat out rumored potential suitors including Comcast, James Murdoch's Lupa Systems and Sony Networks after Zee's parent group said it was looking to sell up to half of its 42 percent stake to a strategic partner.

Following months of speculation, the promoters of Indian media giant Zee Entertainment Enterprises said Wednesday that the company will sell an additional 11 percent stake to U.S. financial investor Invesco Oppenheimer Developing Markets Fund.

The fund has been a financial investor in Zee since 2002, and the additional purchase will increase its holding to 18.7 percent.

In November, Zee's largest shareholder, Essel Group, said it was looking to sell up to half of its 42 percent stake in the company to a strategic partner in a bid to reduce the parent group's debt by selling assets.

Since then, unconfirmed reports speculated that potential suitors circling Zee included Comcast, James Murdoch's Lupa Systems and Sony Networks.

With a market value of $2.7 billion, Essel's debts amount to $2.4 billion, and the group is facing a Sept. 30 deadline to fulfill its debt payments. On a valuation of $5.77 billion, Zee's stake sale to Invesco is valued at $635 million.

"We started out with the intention of selling 20 percent stake in Zee and nine percent is still on the table," Zee managing director and chief executive Punit Goenka was quoted as saying in the Economic Times. Without giving further details, he added, "There are people who are approaching us and engaging with us. Now the floor price is set. I am confident of selling that [the nine percent stake] too and repaying all the lenders by Sept. 30."

Invesco Oppenheimer Developing Markets Fund portfolio manager Justin Leverenz said in a statement that the fund "in its usual business practice has been investing in the Indian markets for many years and has been a financial investor in Zee for 17 years." He added: "This additional financial investment underscores our continued confidence in management’s ability to deliver long-term growth and financial returns. The sound fundamentals of Zee make this a highly compelling transaction for investors in the fund."

For the financial year 2018, Zee posted total revenue of 66.85 billion rupees ($95 million), registering a compound annual growth rate of 12.6 percent over the last five years.

When Essel first said it was looking to sell up to half of its 42 percent stake, for which it appointed Goldman Sachs as investment banker, it explained that Essel was seeking a strategic partner that could help Zee make a more global push and "transform the business into a tech-media company." This in turn led to speculations that Zee could be a prime acquisition for any global media giant.

While the stake sale to Invesco is a purely financial deal, Zee continues to be a dominant player in India's entertainment landscape. Zee was established in 1992 and quickly became a market leader in the dominant Hindi entertainment space with its flagship Zee TV channel. Over the years, the company made forays into news and regional language broadcasting. It also launched the English entertainment channel Zee Cafe, offering popular U.S. shows such as The Big Bang Theory and Two and a Half Men.

The company runs a diversified business, which includes 37 channels across multiple Indian languages that reach 170 countries. It runs VOD service Zee5, which competes against rivals Netflix, Amazon and Disney-owned Hotstar, among others. In addition to its interests in media and entertainment, Essel Group runs diversified businesses from packaging to real estate.