After a two-year acquisition saga, Sony Group Corp. has officially informed Zee Entertainment Enterprises Ltd. that it intends to call off the merger between its India unit and the media network, leaving Zee vulnerable to competition as rivals assemble.
Those familiar with the plan, who wished to remain anonymous because the announcement is not yet public, said that the Japanese entertainment conglomerate sent a termination letter to Zee early on Monday and is anticipated to reveal it to the exchange later.
According to the letter obtained by Bloomberg, Sony terminated the agreement because certain conditions had not been met.
A representative for Sony declined to comment. An inquiry for comment was not immediately answered by a Zee representative.
The action comes after a standoff between the businesses over Punit Goenka, the CEO of Zee, and his leadership of the combined company during an inquiry into his behavior by India’s capital markets regulator. The agreement, which would have created a $10 billion media behemoth with the financial clout to challenge global heavyweights Netflix Inc. and Amazon.com Inc., now looks to have been derailed by the standoff.
On January 8, Bloomberg News revealed that Sony intended to terminate the merger as long as the two parties couldn’t agree on a leadership solution. Zee later stated that negotiations to finalize the merger were still ongoing.
If Goenka is ousted from Zee, which has seen deteriorating financial health, Sony can potentially reconsider another merger proposal, according to one of the people. Zee’s profit for the year ended March 31 dropped 95% to 478 million rupees ($5.8 million) compared with the previous period.
Grace Period
After a 30-day grace period ended over the weekend due to the inability of the parties to agree on a deadline set in late December, Sony sent out the termination letter.
The main obstacle to the deal was the last-minute leadership struggle. Zee was adamant that Goenka would head the new company as per the 2021 agreement, but Sony was hesitant to appoint him in light of the regulatory investigation into him.
The Mumbai-based media outlet was accused by the Securities and Exchange Board of India in June of fabricating the loan recovery in order to cover private financing transactions involving its founder, Subhash Chandra. SEBI said in an interim order that Chandra and his son Goenka “abused their position” and siphoned off funds. As a result, SEBI barred Goenka from positions as an executive or director in listed companies.
As Bloomberg previously reported, Sony saw the ongoing investigation as a matter of corporate governance, even though Goenka received a reprieve from an appellate authority regarding the Sebi order.
The nearly entirely approved deal that fell through would have created a massive entertainment company in which Goenka’s family would have owned 3.99% and Sony would have owned 50.86%.
Sony, which will now have to redraw its media plans for the world’s most-populous country, was expected to benefit from Zee’s deep library of content in regional Indian languages and its bouquet of dozens of local television channels.
Zee not only faces financial vulnerability and investor angst, it’s also going to compete against stronger rivals as Reliance Industries Ltd. and Walt Disney Co. plow on in their talks to merge their India media operations.
