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Updated December 18th, 2023 at 16:10 IST

Zee-Sony merger deal collapse will lead to dire consequences: Industry

There is no clarity on why the request was made, or if Sony will act on it.

Gauri Joshi
Zee merger with Sony
Zee merger with Sony | Image:Republic Business
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Zee has sought an extension for December 21 deadline for its proposed merger with Culver Max Entertainment (CMEPL), formerly known as Sony Pictures Networks India. The deal not going through can negatively impact the shares of Zee Entertainment, as per experts. 

The stock fell as much as 4 per cent in early trading before recovering and closing 1.24 per cent higher at Rs 280.80.

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There is no clarity on why the request was made, or if Sony will act on it.

Akash Mukherjee, Senior Partner at IC Universal Legal said the filing suggests the merger may fall through.

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“Sony has an upper hand in the deal with Zee holding single-digit shares, and a mutual extension is the pre-requisite on extension. In all likelihood, Sony may not agree to the extension and the deal may fall off,” he said.

Zee informing the exchanges rather than both companies agreeing on the extension is a red flag, he added.

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Early Monday, shares of Zee Entertainment Enterprises fell a little over 4 per cent early Monday after the company informed exchanges of seeking further extension of a merger deadline from the Indian arm of the Sony Group.

Milan Sharma, Founder and MD of Mumbai based VC firm 35North Ventures maintains an optimistic view on the merger, but warns of consequences if the deal falls off.

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“The market is quite optimistic about the Zee and Sony merger…(even after) the stock price swings, the market hasn't reacted negatively despite the request for an extension. Everything looks well for both sides for the time being. Such large-scale transactions usually involve some delays.”

Lalit Kumar, Partner for Corporate Practice at JSA Advocates & Solicitors also echoed that such mergers take time.

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“The delay appears to be on account of Sebi’s investigation on the MD & CEO of Zee; the differences between parties of who should head the merged entity. Despite this, it looks unlikely the deal will be called off,” he said.

Both Sharma and Kumar agreed that the deal collapse will lead to dire consequences, and negatively impact share prices.

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Subhash Chandra-backed Zee Enterprises said in a regulatory filing late Sunday that it had sought an extension on the $10 billion merger from the Japanese products and entertainment giant known as Culver Max Entertainment (CMEPL).

The merger agreement was signed on December 21, 2021, making the cut-off date 22 December 2023.

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“We hereby inform you that pursuant to the Merger Cooperation Agreement dated December 22, 2021 entered into amongst the Company, BEPL and CMEPL, the Company has requested CMEPL and BEPL to extend the Date required to make the Scheme effective, as per the terms of the Merger Cooperation Agreement,” Zee said in a regulatory filing late Sunday.

Zee faces investor unrest as the reappointment of two independent directors was rejected while a third withdrew his candidature before the annual general meeting (AGM) last week.

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On December 16, Zee informed the stock exchanges that the two special resolutions seeking reappointment of Vivek Mehra and Sasha Mirchandani, independent directors in the company were defeated after the proposals failed to get approval from three-fourth or 75 per cent of shareholders.

The company shares plummeted as much as 9 per cent last week after non-executive and non-independent director Adesh Kumar Gupta exited just before the company’s Annual General Meeting (AGM) citing “personal reasons.”

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Reports suggest the delay stems from no consensus on who will lead the merged entity, even as son of Subhash Chandra– Puneet Goenka– said in June that the merger would be completed “with or without” him as the head.

Sony has raised objections on Goenka’s candidature as top boss on the back of Securities and Exchange Board of India (Sebi) investigation against him.

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Published December 18th, 2023 at 15:58 IST

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