February 21, 2023
New Delhi, India
Sony-Zee Merger Analysis
On December 21, 2021, Sony Pictures Networks India Private Limited (SPNI) and Zee Entertainment Enterprises Ltd. (ZEEL) announced that they had signed definitive agreements to merge. This merger was set to combine their linear networks, digital assets, production operations, and program libraries.
The new combined company was to be publicly listed in India. The closing of the transaction was subject to certain customary closing conditions, including regulatory, shareholder, and third-party approvals.
Under the terms of the definitive agreements, SPNI was to have a cash balance of USD $1.5 billion at closing, including through infusion by the current shareholders of SPNI and the promoters (founders) of ZEEL. This was to enable the combined company to drive sharper content creation across platforms, strengthen its footprint in the rapidly evolving digital ecosystem, bid for media rights in the fast-growing sports landscape, and pursue other growth opportunities.
After the closing, Sony Pictures Entertainment Inc. (SPE) was to indirectly hold a majority 50.86% of the combined company, the promoters (founders) of ZEEL were to hold 3.99%, and the other ZEEL shareholders were to hold a 45.15% stake. Mr. Punit Goenka was to lead the combined company as its Managing Director & CEO.
The combination of ZEEL and SPNI was expected to achieve business synergies and given their relative strengths in scripted, factual, and sports programming, respective distribution footprints across India and iconic entertainment brands, the combined company should be well-positioned to meet the growing consumer demand for premium content across entertainment touchpoints and platforms.
Here’s a more detailed account of the termination of the merger
On January 22, 2024, Sony Group Corporation officially notified Zee Entertainment Enterprises Ltd. (ZEEL) of its decision to call off the merger between its India unit and the media network. This marked the end of a two-year negotiation process.
The termination was due to ZEEL’s failure to satisfy the merger conditions. One of the key issues was the initiation of arbitration proceedings before the Singapore International Arbitration Centre. There were also conflicting views about the leadership of the combined entity. Sony had been pushing for its India MD & CEO NP Singh for the top job, which was opposed by ZEEL’s MD & CEO Punit Goenka.
Sony cited the delay in the merger as a reason for the termination. The expected completion of the deal was December 21, 2023, but Zee had sought a deadline extension on December 20, which was to expire on January 20, 2024. This 30-day grace period was included in the merger pact signed in December 2021.
After more than two years of negotiations, Sony expressed disappointment that the closing conditions to the merger were not satisfied by the end date. Despite the termination of the merger, Sony remained committed to growing its presence in the vibrant and fast-growing Indian market.
Following Sony’s termination of the agreement, Zee announced that it would take legal action against the Japanese group. The termination of the merger has led to a complex legal situation, with potential implications for both companies.
The Revival Attempt
Despite the initial fallout, the companies didn’t give up. They reignited discussions to potentially seal the $10-billion deal. Representatives from both sides held meetings in Mumbai over the last fortnight, trying to salvage the agreement3. ZEEL’s MD and CEO, Punit Goenka, reportedly conceded his earlier insistence on leading the merged entity
After the termination of the merger, Zee Entertainment Enterprises Ltd (ZEEL) reached out to Sony Group to reconsider the termination and offered for talks. ZEEL is making a last-ditch effort to resurrect the USD 10 billion merger. Sony is currently evaluating the proposal from Zee.
ZEEL is expected to inform Sony within the next 24 hours if it’s willing to accept the terms and conditions. If Zee disagrees, Sony might retract its merger proposal from the National Company Law Tribunal¹. The outcome remains uncertain, but the efforts to save the billion-dollar merger continue.
During the one-month extension of the negotiation period, ZEEL had proposed an extension of a further six months for closing the transaction, even offering to discuss any other alternate closing timeline that Sony believed would be reasonable and achievable.
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Closure
The development comes amidst the two parties filing cases against each other after the deal collapsed. Sony had initiated arbitration proceedings before The Singapore Arbitration Center (SIAC) claiming USD 90 million (around Rs 748.5 cr) as a termination fee. On the other hand, ZEEL filed a petition before the Mumbai bench of the National Company Law Tribunal (NCLT), seeking a direction to Sony Group to implement the merger scheme.
The ball is now in Sony’s court. They need to respond if the deal has to be revived. The union of Zee and Sony’s India subsidiary would have created a potential content and entertainment powerhouse in India. The termination of the merger has led to a complex legal situation, with potential implications for both companies.
At the time of writing this article Zee’s share price were trading at 172.80INR down −19.85.
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