Sony Group Corporation has officially terminated its merger deal with Zee Entertainment Enterprises Limited (ZEEL) in India. The two-year attempt to merge their TV and streaming businesses has come to an end due to unsatisfied closing conditions. Sony Group issued a notice to ZEEL terminating the definitive agreements. While Sony Group stated that it does not anticipate any material impact on its financial results, there is still a risk of being sued by Zee or its shareholders.
The termination fee of $100 million that Sony may have had to pay Zee as part of the original agreement may no longer be applicable as the penalty clause has expired. However, Sony is seeking a termination fee of $90 million from Zee, alleging breaches of the terms of the merger cooperation agreement. ZEEL denies these assertions and plans to take legal action to protect the interests of its stakeholders.
The merger between ZEE and Culver Max Entertainment, formerly Sony Pictures Networks India, would have created a $10 billion entity, consolidating over 70 linear TV channels, two video streaming services, and two film studios. This would have made it the largest player in India’s linear TV market and strengthened its position in the streaming sector.
The deal was first proposed in 2021 and received regulatory approvals. However, during the approvals process, Zee founder Subhash Chandra and CEO Punit Goenka faced allegations of running the company for personal gain. Goenka was initially banned from holding executive office at any listed company but later had the ban reversed on appeal. Sony was reportedly uncomfortable with Goenka in a leadership role due to potential violations of Japanese corporate governance standards.
Sony’s decision not to proceed with the deal may have been influenced by Zee’s declining valuation. While Zee’s revenues have remained flat, profits have significantly decreased. The company’s share price has also dropped, reflecting its financial difficulties.
The cancellation of the deal has caused Zee’s shares to decline further in early Monday trading. The Indian TV sector is facing challenges from competitors such as Disney’s Star and Amazon’s Prime Video. Industry rumors suggest that Reliance Industries may acquire Disney’s India operations soon.
Sony now needs to decide the future of its Indian TV business. It may consider selling parts of the business or making a fresh takeover offer for ZEE. The market dynamics and Zee’s management issues make walking away from the deal a relatively easy decision for Sony.
In conclusion, Sony Group Corporation has terminated its merger deal with Zee Entertainment Enterprises Limited in India. The unsatisfied closing conditions and Zee’s declining valuation were key factors in Sony’s decision. The future of Sony’s Indian TV business remains uncertain, but the company may explore other opportunities in the market.