Sony Group Corporation of Japan has decided to cancel the proposed $10 billion merger of Zee Entertainment Enterprises Ltd (ZEEL) with Sony Pictures Networks India Private Ltd (now referred to as Culver Max Entertainment Ltd), a wholly-owned subsidiary of the Sony Group. In response to Sony’s decision, ZEEL has expressed intentions to undertake measures, including taking appropriate legal action and challenging Culver Max and BEPL’s assertions in the arbitration proceedings.
ZEEL disclosed that it has received communications dated January 22 from Culver Max and Bangla Entertainment Pvt Ltd (BEPL), stating the termination of the merger cooperation agreement (MCA) and seeking a termination fee of $90 million, citing alleged breaches by ZEEL of the MCA terms. Furthermore, Culver Max and BEPL invoked arbitration against ZEEL and sought emergency interim reliefs against the company.
Sony Corporation issued a notice terminating the definitive agreements entered into by SPNI and Zee Entertainment concerning the merger of ZEEL with SPNI, finalized on December 22, 2021. Sony attributed the termination to delays in the merger process, coupled with disputes over the leadership of the combined entity involving Zee’s managing director and chief executive officer (MD and CEO) Punit Goenka.
Sony stated, “Despite engaging in good-faith discussions to extend the end date under the merger cooperation agreement, we were unable to reach an agreement by the January 21 deadline. After over two years of negotiations, we express deep disappointment that closing conditions for the merger were not satisfied by the end date.”
While the expected completion date for the deal was December 21, 2023, Zee had requested a deadline extension on December 20, set to expire on January 20. This 30-day grace period was stipulated in the merger pact signed in December 2021. The definitive agreements also outlined that if the parties failed to agree upon such an extension by the end of the discussion period, any party had the right to terminate the definitive agreements by providing written notice, according to Sony.
In an exchange filing, Zee Entertainment Enterprises refuted the claims and assertions made by Culver Max and BEPL regarding alleged breaches of the MCA, including their demands for the termination fee. ZEEL stated that it is evaluating all available options based on guidance from the board and will take necessary steps to protect the long-term interests of stakeholders, including pursuing legal action and contesting Culver Max and BEPL’s claims in arbitration proceedings.
“As I reached Ayodhya early this morning for the propitious event of Pran Pratishtha, I received a notification that the deal I have spent two years envisioning and working toward had fallen through, despite my utmost and sincerest efforts,” Goenka shared on X, formerly Twitter. “I perceive this as a sign from the Almighty. I am determined to move forward positively and contribute to the strengthening of Bharat’s pioneering M&E Company, for the benefit of all its stakeholders,” Punit Goenka conveyed on the microblogging site. “We remain devoted to expanding our presence in this dynamic and rapidly growing market, delivering top-notch entertainment to Indian audiences,” Sony expressed.
In June 2023, market regulator SEBI issued an interim order restraining Punit Goenka from holding key positions in any listed company, in connection to alleged fund diversion. Goenka received relief from the Securities Appellate Tribunal (SAT) on October 30, 2023, overturning a ban imposed by SEBI on his directorships in the Zee group, even though a regulatory probe regarding fund diversion allegations still lingers.
Sony has been uneasy with this regulatory uncertainty given its corporate governance policies, according to sources. It has advocated for its India MD & CEO NP Singh for the top position, a move opposed by Goenka. “The merger did not conclude by the stipulated end date, as, among other things, the closing conditions were not met by then. SPNI has been involved in discussions in good faith to extend the end date, but the discussion period has lapsed without an agreement on an extension of the end date,” it stated.
According to the original merger plan, Sony would have held a 51% stake in the entity, with promoters’ shares at 4%, and the remaining held by the public. The merger proposal was initially disclosed on September 22, 2021, after Invesco, the largest shareholder of ZEEL, called for an extraordinary general meeting of ZEEL shareholders for the removal of Punit Goenka, MD and CEO, and the appointment of six directors.
Sony has not factored in the impact of the merger in its consolidated financial results forecast for the fiscal year ending March 31, 2024, announced on November 9, 2023, and does not expect any significant impact on its consolidated financial results due to the termination of the definitive agreements for the merger, as per Sony’s statement.
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