Sony Ends $10 Billion India Zee Merger, Setting Stage For Legal Spat
Japan’s Sony Group scrapped plans on Monday for a $10 billion merger with India’s Zee Entertainment, with both sides set to challenge each other legally over failures to close a deal that was due to reshape the country’s media landscape.
The collapse of the deal intended to create a media powerhouse in content-hungry India creates more uncertainty for TV broadcaster Zee in particular at a time when competition is heating up.
Disney is now seeking to merge its Indian businesses with media assets of billionaire Mukesh Ambani’s Reliance to form one of India’s biggest entertainment empires.
Sony said in a statement certain “closing conditions” to the merger were not satisfied despite “good faith discussions” with Zee, and the companies were unable to agree upon an extension by their Jan. 21 deadline.
“After more than two years of negotiations, we are extremely disappointed ... We remain committed to growing our presence in this vibrant and fast-growing market,” it added.
Zee told Indian stock exchanges Sony was seeking $90 million in termination fees for alleged breaches of the merger agreement and emergency interim relief by “invoking arbitration”. Zee said it refutes all claims made by Sony and would take appropriate legal action.
Although Sony or Zee did not elaborate on Monday what conditions were unfulfilled, a stalemate over who will lead the combined company had put the merger in danger.
Zee had proposed that CEO Punit Goenka take the helm, but Sony balked after he became the subject of an investigation by India’s market regulator. Zee said on Monday, however, that Goenka had been “agreeable to step down in the interest of the merger”.
‘A sign from the Lord’
Last year, the Securities and Exchange Board of India barred Goenka from holding directorships at any listed company, accusing him of being involved in diverting Zee’s funds to the group’s other listed entities.
Goenka denied the allegations. An Indian tribunal lifted the ban on him in October but said he would have to cooperate with any investigation by the regulator.
Goenka, who was in India’s Ayodhya city to attend the grand opening of a Lord Ram temple, wrote on X that he sees the Sony deal collapse as “a sign from the Lord”, adding he would move forward by strengthening his company for his stakeholders.
Zee is currently contending with declines in advertising revenue and cash reserves. Its cash reserves fell to 2.48 billion rupees in the six months ended Sept. 30 compared with 5.88 billion rupees a year earlier.
Zee said it had undertaken several steps for the Sony deal resulting in “one time and recurring costs”, but will now “continue to evaluate organic and inorganic opportunities for growth.”
With channels in segments like news and entertainment in Hindi and other languages, Zee has for years been a household name in India. It was set up in 1992 by Subhash Chandra, Goenka’s father who is often dubbed the “Father of Indian Television”.
Sony, which too has entertainment channels in India and a streaming service, together with Zee could have had a portfolio of 90 plus channels.
“The failure of the Zee-Sony merger will be disappointing for shareholders – this merger had the potential to materially change industry dynamics,” said Hetal Dalal, president and chief operating officer of Institutional Investor Advisory Services.
Sony said it did not expect any material impact from the termination to its estimates for the year ending in March as it did not factor in the deal to its outlook.
Zee shares are down about 8% from its levels before the merger was first announced in September 2021.
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