Sony-Zee merger called off: Decoding the two-year tryst

No deal after all: Sony Group Corp’s India unit has officially called off the $10 billion merger with Zee Entertainment on Monday.

The termination notice sent to the Subhash Chandra-backed media group seeks $90 million as penalty for not abiding by merger terms.

"Sony Pictures Networks India Pvt Ltd (now known as Culver Max Entertainment Limited), a wholly-owned subsidiary of Sony Group Corporation, today issued a notice terminating the definitive agreements entered into by SPNI and Zee Entertainment Enterprises Ltd. relating to the merger of ZEEL with and into SPNI, which was previously announced on December 22, 2021," the Japanese firm’s statement read. 

What Happened?

The merger, agreed upon in 2021, did not fall through since both entities pushed for their unit chiefs to lead, with Sony proposing their India head NP Singh.

Zee Entertainment Enterprises Ltd (ZEEL) MD and CEO Punit Goenka, who had said the merger will fall through ‘with or without him’ leading it, eventually became adamant to lead.

Zee has denied Sony’s claims, and informed exchanges of exploring legal remediation. 

"Zee has displayed utmost commitment towards the merger by undertaking several permanent and irreversible steps, resulting in one-time and recurring costs for Zee," it said.

Experts Republic Business spoke to had raised concerns on the unilateral nature of Zee's intimation to exchanges for a timeline extension.

The Past

On September 22, 2021: Zee Entertainment and Sony entered into merger talks, with a proposal that ZEEL’s present CEO Punit Goenka will lead the new entity as its CEO and managing director.

Three months hence, on December 22, 2021: Sony signed a definitive agreement with ZEEL for the merged entity to be carved out.

Eight months after the pact, on August 31, 2022: The Competition Commission of India took cognisance of the proposed merger, flagging a "humongous market position" of the merged entity that would have about 92 channels. This would result in "unparalleled bargaining power" in the country’s enormous media and entertainment market.

But two months hence, on October 4, 2022: CCI approved the merger after the Japanese conglomerate and the Indian partner Zee offered pricing discounts, which also included the sale of Big Magic, Zee Action, and Zee Classic to comply with anti-competitive measures.

Eight months later, on June 12, 2023: The Securities and Exchange Board of India barred Goenka from assuming any role in the board of  Zee Group companies, including Zee Entertainment for a period of one year. As per the market regulator, Goenka was actively involved in diverting company funds to related entities of the Zee Group. Goenka did not agree to the charges. 

In less than 10 days, on June 21, 2023: Sony said it is taking the SEBI order "very seriously," and maintain an eye on developments “that may affect the deal".

But after four months on October 30, 2023: The Securities Appellate Tribunal (SAT) debarred Goenka from holding board positions in Zee Group companies. However, Goenka had to cooperate with ongoing and investigations by regulators as a condition.

Days shy of the timeline set for culminating the deal (December 21, 2023), on December 17, 2023: Zee informed exchanges it had sought a further extension on the merger deadline from Sony.

In the beginning of 2024, on January 9: Zee expressed its commitment to the merger with Sony, seeking a deadline extension of January 20 to finalise the merger.

But two days after the merger extension deadline had expired, Sony decided to terminate the merger through an official statement on January 22, 2024. It was reported that on January 18 and 19, Sony had held discussions with its board to come to a consensus on the decision to call off the deal.

The Stakes

The Sony-Zee deal, if completed, would have created a $10 billion entertainment behemoth wherein Sony would own 50.86 per cent, and the Goenka family owning 3.99 per cent. The rest would go to Zee board members.

The merger, which was cleared by the Competition Commission of India (CCI) in 2022, also saw the sale of Big Magic, Zee Action, and Zee Classic to comply with anti-competitive measures. It was also cleared by NCLT, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) as well as shareholders and creditors of the company.

Sony had plans to invest $1.575 billion in the merged entity, owning a majority stake in the entity. The Chandra family also had a free hand over increasing its shareholding from the current 3.99 per cent to over five times over, or up to 20 per cent. 

The Future

The collapse of the deal will now send Zee to redraw its strategy. It now faced competition from the prospective merger of the media operations of Reliance Industries Ltd and Walt Disney Co.

Sony too will have to relook at its India strategy, as it will not be able to leverage Zee's library of content in regional languages, and its bouquet of dozens of television channels.

The Zee Group's four-year pact with Disney-owned Star for broadcasting rights on television pertaining to certain cricket events may be at risk after the deal's collapse.

Notably, the ESSEL Group-owned conglomerate is supposed to pay $1.32-1.44 billion over the tenure of the pact.

(With agency inputs)