Forbes India 15th Anniversary Special

Sony terminates merger talks with Zee, Zee considers legal action

Punit Goenka, Zee Entertainment CEO and MD, who faces a regulatory probe and whose leadership was cause for concern to Sony, says that the deal has 'fallen through, despite [his] best and most honest efforts'

Pankti Mehta Kadakia
Published: Jan 22, 2024 03:59:07 PM IST
Updated: Jan 22, 2024 04:11:43 PM IST

Sony terminates merger talks with Zee, Zee considers legal action(File) Punit Goenka, MD and CEO of Zee Entertainment Enterprises Ltd. Image: Hemant Mishra/Mint via Getty Images

After more than two years of talks, a merger deal between media and entertainment companies Sony Group Corp and Zee Entertainment has been terminated, according to a statement by Sony. The merger would have made the new entity India’s largest company in the space.

The statement read:
“Sony Pictures Networks India Private Ltd (SPNI, now known as Culver Max Entertainment Limited), a wholly-owned subsidiary of Sony Group Corporation, today issued a notice terminating the definitive agreements entered into by SPNI and Zee Entertainment Enterprises Ltd (ZEEL), relating to the merger of ZEEL with and into SPNI, which was previously announced on December 22, 2021.

Although we engaged in good faith discussions to extend the end date under the merger cooperation agreement, we were unable to agree upon an extension by the January 21 deadline. After more than two years of negotiations, we are extremely disappointed that closing conditions to the merger were not satisfied by the end date.

 “We remain committed to growing our presence in this vibrant and fast-growing market and delivering world-class entertainment to Indian audiences.”

Sources believe that the primary point of contention revolves around the leadership of the new company, with Zee's chief executive officer, Punit Goenka, at the centre of the dispute. As per the initial agreement signed in 2021, Goenka was slated to lead the merged entity.

However, SEBI had, last year, issued a ban on Goenka from executive or directorial appointments in listed companies, over accusations of loan recovery falsification and financial misconduct involving Zee’s founder and Goenka’s father Subhash Chandra.

Listen: $10 bln Sony-Zee merger: What happens after Sebi's ban against Zee promoters?

Meanwhile, an official press release from Zee notes that Sony is seeking a termination fee of $90 million on account of alleged breaches by Zee. Zee has ‘categorically’ denied the allegations, ‘including the claims for the termination fee’.

“ZEEL’s Board of Directors is evaluating all the available options. Basis the guidance received from the Board, ZEEL will take all the necessary steps to protect the long-term interests of all its stakeholders, including by taking appropriate legal action and contesting Culver Max and BEPL’s claims in the arbitration proceeding,” R Gopalan, chairman, ZEE Entertainment Enterprises Ltd, said in a statement.

Meanwhile, Punit Goenka, in Ayodhya for the Ram Mandir inauguration ceremony, posted on X (formerly Twitter) that he resolves to ‘move ahead positively’.

‘As I arrived at Ayodhya early this morning for the auspicious occasion of Pran Pratishtha, I received a message that the deal that I have spent 2 years envisioning and working towards had fallen through, despite my best and most honest efforts.

I believe this to be a sign from the Lord. I resolve to move ahead positively and work towards strengthening Bharat’s pioneering M&E Company, for all its stakeholders,’ his post read.

The termination of the deal has significant implications for the media and entertainment industry. Rivals Reliance and Disney+ are reportedly in advanced talks for a merger of their own, for the latter’s India business, which the Sony-Zee networks will be better placed to take on with a new merged entity.  

“Linear TV is also seeing a big threat from digital,” says media analyst Karan Taurani, senior vice president, Elara Capital. “Linear TV players have been unable to monetise as aggressively on digital, because digital advertising is heavily fragmented, and they’re competing with big tech companies such as Amazon, Facebook and Google. It’s the need of the hour for larger broadcasting conglomerates to come together, consolidate and work for each other’s benefit.”

While Zee has been riddled with regulatory issues, the termination would serve a big blow to Sony as well, for which India has been a focus market.

“Even so, let’s remember that Sony is a Japanese company with huge US interests,” says Abhishek Malhotra, managing partner, TMT Law Practice. “It could face massive implications in terms of its corporate image, if it goes ahead with a CEO who is under regulatory scrutiny. The larger commercial interests could be sidelined by the need to protect their reputation, built over time, despite the huge amount of financial and other investments that have been made for this merger already.”