Sony Corporation, the Japanese electronics and media giant, has called off its planned $10 billion merger with Zee Entertainment Enterprises, India’s largest television network. Sony is also seeking a $90 million break-up fee from Zee for the termination of the deal, which was announced in September 2023.
Background of the Merger
The merger between Sony and Zee was expected to create a media powerhouse in India, combining Sony’s popular sports and entertainment channels with Zee’s extensive portfolio of regional and national channels. The deal would have given Sony a 52.93% stake in the merged entity, while Zee’s promoters would have held 47.07%.
The merger was seen as a strategic move by both parties to counter the growing competition from online streaming platforms such as Netflix, Amazon Prime Video, and Disney+ Hotstar, as well as rival broadcasters such as Star India and Viacom18. The deal was also expected to generate synergies and cost savings of up to $300 million per year.
The merger talks began in July 2023, after Zee’s founder and chairman Subhash Chandra stepped down from his position amid a debt crisis. Zee had borrowed heavily to fund its expansion and diversification but faced a liquidity crunch when some of its lenders invoked pledged shares. Zee was also under pressure from its largest shareholder, Invesco Developing Markets Fund, which sought to oust Chandra and his family from the board and appoint independent directors.
Sony Terminates Merger Talks With Zee Entertainment
However, the merger faced several hurdles and delays, as both parties needed help to agree on the valuation, governance, and regulatory approvals. Sony reportedly reduced its valuation of Zee from $13 billion to $10 billion, citing the impact of the Covid-19 pandemic and the uncertainty over Zee’s future performance. Zee, on the other hand, argued that its valuation should be higher, based on its strong recovery and growth prospects.
The merger also faced opposition from some of Zee’s minority shareholders, who claimed that the deal undervalued Zee and favored Sony. They also raised concerns over the merger process’s lack of transparency and due diligence. Some of them filed petitions with the Securities and Exchange Board of India (SEBI) and the National Company Law Tribunal (NCLT) to block the merger.
In January 2024, Sony announced that it had decided to terminate the merger talks with Zee, citing the failure to reach a mutually acceptable agreement and the prolonged regulatory uncertainties. Sony also said that it had incurred significant costs and expenses in pursuing the merger and that it was entitled to a break-up fee of $90 million from Zee, as per the terms of the merger agreement.
Implications of the Termination
The termination of the merger deal is a major setback for both Sony and Zee, as they lose the opportunity to create a dominant player in the Indian media market. Sony will have to look for other ways to expand its presence and compete with its rivals, while Zee will have to find alternative sources of funding and resolve its governance issues.
The termination also opens the door for potential legal disputes between the two parties, as they may disagree on the validity and enforceability of the break-up fee clause. Zee may challenge Sony’s claim for the break-up fee, arguing that Sony was the one who breached the merger agreement by lowering its valuation and imposing unreasonable conditions. Sony may counter that Zee was the one who failed to meet its obligations and cooperate in the merger process.
The termination may also have implications for the Indian media industry, as it may affect the valuation and attractiveness of other media companies. It may also trigger a consolidation wave, as other players may look to merge or acquire smaller players to gain scale and market share.