Sony Group Corp has officially notified Zee Entertainment Enterprises Ltd (ZEEL) of its plans to call off the merger between its India unit, Culver Max Entertainment Pvt Ltd and ZEEL, ending a two-year acquisition saga and leaving Zee vulnerable to competition as rivals bulk up, says a report from Bloomberg
. Sony also asked for a termination fee of US$90mn (million) from ZEEL over an alleged breach of the merger cooperation agreement (MCA).
In its notice terminating the merger announced on 22 December 2021, Sony group says the closing conditions to the merger were not satisfied by the end date.
It says, "The definitive agreements provided that if the merger did not close by the date 24 months after their signature date (the end date), the parties would be required to discuss in good faith...The merger did not close by the end date as, among other things, the closing conditions of the merger were not satisfied by then... Sony Pictures Networks India Pvt Ltd (SPNI) (now known as Culver Max Entertainment) has been engaged in discussion in good faith to extend the end date, but the discussion period has expired without an agreement upon an extension of the end date. As a result, on 22 January 2024, SPNI issued a notice to ZEEL terminating the definitive agreements."
"Sony has not included the impact of the merger in its consolidated financial results forecast for the fiscal year ending 31 March 2024, which was announced on 9 November 2023 and does not anticipate any material impact on its consolidated financial results as a result of a termination of the definitive agreements for the merger," it says.
In a regulatory filing, ZEEL says it has received notices from Culver Max Entertainment and Bangla Entertainment Pvt Ltd (BEPL) to terminate the MCA, invoking arbitration under the MCA and seeking emergency interim reliefs of US$90mn against the company.
"The Company categorically refutes all claims and assertions made by Culver Max and BEPL regarding alleged breaches of the MCA by ZEEL, including their claims for the termination fee, and reserves all its rights in this matter. The Company is evaluating all available options and basis the guidance received from the Board and will take all necessary steps to safeguard the long-term interests of its stakeholders, including by taking appropriate legal action and contesting Culver Max and BEPL’s claims in the arbitration proceedings," ZEEL says.
Earlier this month, quoting familiar with the matter, Bloomberg said that Sony was looking to cancel the deal due to a standoff over whether Zee's chief executive officer (CEO) Punit Goenka, also its founder's son, would lead the merged entity.
While the agreement signed in 2021 was that Mr Goenka would lead the new company, the people say Sony no longer wants him as CEO amid a regulatory probe.
As agreed initially, Mr Goenka has stood his ground in wanting to helm the merged entity over prolonged meetings in the past few weeks, the report says, quoting another person.
Last week, in a regulatory filing, ZEEL stated that it is not aware of, and cannot comment on, any board meeting held or proposed to be held by Culver Max Entertainment (formerly Sony Pictures Networks India Private Ltd), given that these are Sony's internal matters.
"We wish to reiterate that the company is committed to the merger with Sony and is continuing to work towards a successful closure of the proposed merger and is engaging in good faith negotiations with Sony with a view to discussing the extension of the date required to make the Scheme effective, by a reasonable period of time," the company says.
In December 2021, Sony and Zee announced that they would integrate their television stations, film assets, and streaming platforms to build a media and entertainment powerhouse with a large base of 1.4bn (billion) viewers.
Under the terms of the deal, Sony would have owned 53% of the merged company, with Mr Goenka as the managing director and chief executive officer (MD & CEO) of the new entity.
Founders of ZEE had to dilute their stake in the company to tackle debt in 2019, and the Sony deal was struck amid a 2021 boardroom conflict with an overseas shareholder.
In October 2022, the Competition Commission of India (CCI) approved the Sony-Zee merger based on several conditions. CCI also had imposed limits to prevent Zee Sony from abusing its dominating market position.
CCI stated in a 21-page notice that its initial assessment showed the proposed deal will leave the merged business in a "strong position" with roughly 92 channels in India, citing Sony's global revenue of US$86bn and assets of US$211bn.
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