Sony pulls plug on $10bn merger with Zee, seeks $90m termination fees

After two years of deadlock in negotiations, Japan’s Sony Corp on Monday called off its proposed $10 billion merger between its India unit and Zee Entertainment Enterprises.
Sony Corp’s 62-page merger termination notice came just when Zee had requested it to extend the deal deadline.
While Sony cited unmet merger conditions as the reason for the termination, the two companies have been wrangling over who will lead the combined entity. Zee proposed MD Punit Goenka would be at the helm, but Sony disagreed in the light of a regulatory investigation against him and wanted its nominee, India MD N P Singh, to run the show. The Japanese giant has sought $90 million from Zee as termination fees for breaches of the merger pact and has invoked arbitration. Zee has refuted all of Sony’s assertions and said it will take legal action against the latter as well as contest its claims in arbitration proceedings.
The collapse of the merger is expected to have a negative impact on both Sony and Zee.
Merger talks collapse amid market disruption
The collapse of the SonyZee merger negotiations comes at a time when the market is going through digital disruption and consolidation, where Reliance Industries’ Viacom18 and the India unit of Walt Disney are planning a merger.
“After more than two years of negotiations, we are extremely disappointed that closing conditions to the merger were not satisfied… We remain committed to growing our presence in (India’s) vibrant and fast-growing market,” said Sony. It, however, didn’t specify what conditions were unfulfilled. Sony further said that even after the two-year deal timeline ended on Dec 21, 2023, it was engaged in “good faith discussions” with Zee for 30 days to make the merger effective but both “were unable to agree upon an extension by the Jan 21 deadline”.
Zee said 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 further said it had proposed “protections for conduct of pending investigations and legal proceedings in the best interest of its directors and shareholders”.
Zee also said that it had requested Sony to extend the merger deadline by six more months after the 30-day grace period lapsed. However, Sony “did not provide any counter proposal for extension”, it said. “These discussions did not result in any proposal from Sony but they rather have chosen to terminate,” it stated. Goenka, who was in Ayodhya for the Ram temple ceremony when he received the message that Sony had called off the deal, posted on X that he sees the development as “a sign from the Lord”, adding that he would move ahead positively and work towards strengthening Zee for all its stakeholders.


Markets regulator Sebi is conducting investigation against Goenka for alleged diversion of funds from Zee to promoter entities. A final order is yet to come. Earlier, Sebi had barred Goenka from holding directorships in any listed entity. But Securities Appellate Tribunal reversed the interim order and directed Sebi to complete the investigation.Zee, which spent Rs 176 crore on merger-related expenses in FY23, said it will continue to “evaluate organic and inorganic opportunities for growth, leveraging the intrinsic value of its assets”.


Zee is contending with falling profits and cash reserves in a highly competitive market where streaming majors such as Netflix and Amazon Prime are fighting for share. “With the merger terminated, Zee’s valuation will slump back to 12 times its price to earning (PE) levels seen prior to the merger announcement,” foreign brokerage CLSA said. “The stock had derated in the past during the promoter share pledging crisis (in 2019) and fall in business cash conversion. We downgrade Zee from buy to sell on a revised target price of Rs 198 (prior price was Rs 3 00).”

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