Sony Corp has terminated its proposed $10 billion merger with Zee Entertainment Enterprises after two years of deadlock in negotiations. The termination notice came just as Zee had requested an extension of the deal deadline. While Sony cited unmet merger conditions as the reason for the termination, the main point of contention between the two companies was who would lead the combined entity. Zee proposed MD Punit Goenka, but Sony disagreed due to a regulatory investigation against him and wanted its nominee, N P Singh, to take charge.
Sony is seeking $90 million from Zee as termination fees for breaches of the merger pact and has invoked arbitration. Zee, on the other hand, has refuted all of Sony’s assertions and plans to take legal action against Sony while contesting its claims in arbitration proceedings.
The collapse of the merger is expected to have a negative impact on both Sony and Zee. This comes at a time when the market is going through digital disruption and consolidation, with other major players planning mergers. Reliance Industries’ Viacom18 and the India unit of Walt Disney are also in talks for a potential merger.
Sony expressed its disappointment over the failed merger, stating that the closing conditions were not satisfied. The company remains committed to growing its presence in India’s vibrant and fast-growing market but did not specify which conditions were unfulfilled. Despite the two-year deal timeline ending on December 21, 2023, Sony engaged in “good faith discussions” with Zee for 30 days to make the merger effective. However, they were unable to agree on an extension by the January 21 deadline.
Zee claimed that Goenka had agreed to step down in the interest of the merger and had discussed the appointment of a director on the board of the combined company. It also proposed protections for pending investigations and legal proceedings. Zee requested a six-month extension after the 30-day grace period, but Sony did not provide a counter proposal and chose to terminate the deal instead.
Despite the setback, Goenka remains positive and sees the development as a sign from the Lord. He is determined to work towards strengthening Zee for all its stakeholders.
Zee is currently facing falling profits and cash reserves in a highly competitive market where streaming giants like Netflix and Amazon Prime are vying for market share. With the merger terminated, Zee’s valuation is expected to slump back to pre-announcement levels. Foreign brokerage CLSA downgraded Zee from buy to sell and revised its target price to Rs 198.
While the termination of the merger is a blow to both Sony and Zee, it highlights the challenges and complexities of navigating mergers and acquisitions in a rapidly evolving market. Both companies will now have to reassess their strategies and explore other opportunities for growth.
