Sony has terminated the proposed $10 billion merger between its India businesses and Zee Entertainment, as announced on Monday.
The Sony-Zee pact sought to develop India’s largest entertainment firm, with the financial resources to compete with international giants like Netflix Inc. and Amazon.com Inc. The company aims to compete with local companies like Reliance Industries Ltd, which is presently in negotiations with Disney.
Sony Group Corp is unlikely to prolong good faith discussions with Zee Entertainment Enterprises Ltd. (ZEEL), whose deadline was set for midnight on January 21st. Zee urged Sony to postpone the merger date of December 21, 2023, which was signed on December 22, 2021.
What happened with the Sony and Zee merger?
In December 2021, Sony and Zee signed formal merger agreements. Sony was to have an indirect majority of 50.86% of the merged business; the ZEEL founders would own 3.99%; and the remaining ZEEL shareholders would hold 45.15%. The transaction was expected to close in 8-10 months. However, two years later, it remained unfinished owing to regulatory investigations and legal proceedings against Zee and its promoters, notably MD and CEO Punit Goenka.
“Sony Pictures Networks India Private Ltd. (“SPNI”) (now known as Culver Max Entertainment Limited), a wholly-owned subsidiary of Sony Group Corporation (“Sony”), issued a notice today terminating the definitive agreements entered into by SPNI and Zee Entertainment Enterprises Ltd. (“ZEEL”) relating to the merger of ZEEL with and into SPNI (the “Merger”), which was previously announced on December 22, 2021,” the company said in a statement.
The agreements stated that if the merger did not occur within 24 months of signing (the “End Date”), the parties would have to discuss reasonably extending the End Date. They are required to hold these conversations for a month following the End Date (known as the “Discussion Period”). The agreements stipulated that if the parties were unable to agree on an extension by the conclusion of the Discussion Period, they might terminate the agreement with written notice.
What led to it and say of the company?
Sony explained that the merger was not completed by the End Date due to unmet requirements.
SPNI has participated in good faith talks to extend the End Date, but the Discussion Period has ended without an agreement to extend the End Date. As a result, on January 22, 2024, SPNI sent ZEEL a notification terminating the definitive agreements,” the company stated.
If the purchase had gone through, it would have helped Sony expand its media business in the world’s most populated and rapidly rising market. According to Motilal Oswal Financial Services Ltd., Sony would have over 75 television channels, accounting for 37% of the market, exceeding Disney-owned Star’s 24%. The Sony-Zee collaboration would have directly competed with the upcoming Reliance-Disney joint venture, creating a near-duopoly scenario.
Reports about the merger’s imminent termination began to circulate in early January, although Zee refuted such predictions and remained optimistic that the merger would proceed.
Impact on companies after termination
According to Karan Taurani, senior vice president at Elara Securities, the termination will have a severe impact on both organizations, which are experiencing strong competition from digital media. Sony and Zee may also face danger from the RIL/Disney combination in the foreseeable future, he said.
Sony elected not to continue the discussions because Zee Entertainment failed to comply with what are known as conditions precedents (CP) in legalese, as well as the company’s poor financial state.
This has led to continued unhappiness among possible partners, as ET reported before. They also did not agree to designate ZEEL MD Punit Goenka as CEO of the amalgamated organization unless he was exonerated of accusations that he diverted funds from the publicly listed firm to tightly held entities owned by his family’s Essel Group. The Goenka family now owns 3.99% of ZEEL, while public and institutional stakeholders possess the remaining shares.
Insiders at Sony said that the multinational has recommended hiring Goenka as an advisor at the new firm. However, Sony advised that he not be a member of the board until regulatory investigations are completed.
Sony requested that NP Singh, its India MD and CEO, serve as the new entity’s interim CEO. This will be the case until Goenka is exonerated of all current charges.
Sony has not included the impact of the Merger in its consolidated financial results forecast for the fiscal year ending March 31, 2024, which was announced on November 9, 2023. The termination of the definitive agreements for the Merger is not expected to have a material impact on its consolidated financial results.
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