Why Did Zee-Sony Merger Fail, And What Are the Next Steps

By Pickle  January 23, 2024
Why Did Zee-Sony Merger Fail, And What Are the Next Steps, Pickle Media



• Two contrasting statements on January 22, 2024, from Sony Pictures (Culver Max) and Zee Entertainment reveal that the planned merger had run aground quite some ago:

• In its statement dated January 22, 2023, Sony (Culver Max) stated that certain “closing conditions” to the merger were not satisfied despite “good faith discussions” with Zee, and the companies had been unable to agree upon an extension by their January 21 2024 deadline. “After more than two years of negotiations, we are extremely disappointed … We remain committed to growing our presence in this vibrant and fast-growing market.

• In a sharp retort, Zee informed the Stock Exchanges that Sony (Culver Max) was seeking $90 million in termination fees for alleged breaches of their merger agreement and emergency interim relief by “invoking arbitration”.

• Zee said it is evaluating all available options and, based on the guidance received from the Board, it 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.

• The promoter CEO and MD of Zee, Mr Punit Goenka, invoked divine intervention by telling the media in Ayodhya on January 22, 2024, stating 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 two 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.

• In fact, the merger had been proceeding quite smoothly despite determined efforts by creditors of Essel Group to block the merger, with the National Company Law Tribunal dismissing all objections and giving complete unqualified approval by its judgment dated 10.08.2023 stating in para 19 that from the material on record, the Composite Scheme of Arrangement appears to be fair and reasonable and is not violative of any provisions of law and is not contrary to public policy.”

• The main hurdle was the insistence of the minority promoter Essel Group that Mr Punit Goenka continue as CEO/MD of the newly merged entity despite a serious SEBI enquiry in progress against him and his father, Mr Subhash Chandra, on alleged diversion of approximately Rs. 200-1000 crores of Zee to related Essel group companies.

• The Securities Appellate Tribunal (SAT), by its order dated 30.10.2023, promptly granted relief to Mr Punit Goenka and his father, who were sought by SEBI to be banned from holding any managerial position in Zee till the completion of the investigation. However, SEBI was allowed to continue the investigation.

Future Outlook

• The Indian Media Scenario has undergone seminal changes in the past two years when Sony and Zee had announced their plans to merge. If the merger had gone through, it would have created a media behemoth of USD 10 billion with at least a 25% TV market share. It helped Zee steady its precarious finances and Sony access to a vast regional content and film library.

• Zee’s recent default to pay for the ICC cricket rights sub-leased by Disney will only add to Zee’s severe financial woes.

• The proposed Disney-Reliance JV will now have less competition due to the merger’s failure of Sony and Zee. According to one forecast, this JV will have:

• A combined market share exceeding 45% in television and potentially over 50% in streaming. This would dwarf the next competitor (Disney-Star currently holds around 35% and 40%, respectively).

Content Powerhouse: Reliance’s massive reach and infrastructure, combined with Disney’s content library and production capabilities, would create a dominant content force.

Distribution Advantage: Reliance Jio, India’s largest mobile network operator, could offer preferential bundling of Disney+ Hotstar with Jio subscriptions, giving them immense reach and subscriber acquisition power.

Advertising Monopoly: Such a dominant position could give the Disney- Reliance JV huge leverage.

• This JV is, of course, subject to various regulatory approvals.

• Possible suitors for Zee being talked about by media (but without factual foundation) are the Adani group using the NDTV vehicle, Amazon, and Google ( both will run into FDI and regulatory hurdles as broadcasting is treated as a sensitive sector), and Sun TV (highly unlikely as it is content in the regional space).

The current shareholding of Zee is that it is largely a publicly held company:

• Subhash Chandra Goenka & Family: 3.99%
• Public Shareholding: 96.01% (comprising various categories)
• Domestic Mutual Funds & Insurance Companies (including LIC): 44%
• Key domestic shareholders include:
 ICICI Prudential Value Discovery Fund: 7.25%
 Nippon Life India: 6.12%
 HDFC Asset Management: 5.25%
 HDFC Life Insurance: 1.85%
• Foreign Institutional Investors (FIIs): 20%
• Others (Retail Investors, etc.): 32%.


• The whip hand lies with the Domestic institutions and Indian retail investors. The problem will be that if the promoter minority group led by Mr Subhash Chandra and Mr Punit Goenka do not step aside and let professional management run the company like ITC/Hindustan Lever or Proctor Gamble, the Zee group could implode.

• Meanwhile, Sony and Zee will lick their wounds and be locked in arbitration with no possible succour for either group shortly.

• A great consolidation move has vanished into thin air.

ASHOK MANSUKHANI is Advocate Bombay High Court and Media and Corporate law expert.

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