Japan’s Sony Group has initiated a legal battle by claiming $90 million termination fees after it called off the merger with Zee Entertainment on January 22. Zee told Indian stock exchanges Sony was seeking termination fees for alleged breaches of the merger agreement and emergency interim relief by “invoking arbitration”.
Zee said it refutes all claims made by Sony and would take appropriate legal action.
“Sony has invoked arbitration to refer their disputes under the merger which means both parties will undergo an arbitration process for resolution of their disputes under the merger,” Moneycontrol quoted Dhiraj Mhetre, partner at Khaitan Legal Associates, as saying.
“Zee will be defending the claims of Sony in the arbitration, including the claim of $90 million towards termination fee.”
Although Sony or Zee did not elaborate on Monday what conditions were unfulfilled, a stalemate over who would lead the combined company had put the merger in danger.
Zee had proposed that CEO Punit Goenka take the helm, but Sony balked after he became the subject of an investigation by India’s market regulator. Zee said on Monday, however, that Goenka had been “agreeable to step down in the interest of the merger”.
‘A SIGN FROM THE LORD’
Goenka, who was in India’s Ayodhya city to attend the grand opening of a Lord Ram temple, wrote on X that he sees the Sony deal collapse as “a sign from the Lord”, adding he would move forward by strengthening his company for his stakeholders.
Meanwhile, Zee said it had undertaken several steps for the Sony deal resulting in “one-time and recurring costs”, but will now “continue to evaluate organic and inorganic opportunities for growth.”
With channels in segments like news and entertainment in Hindi and other languages, Zee has for years been a household name in India. It was set up in 1992 by Subhash Chandra, Goenka’s father who is often dubbed the “Father of Indian Television”.
Sony, which too has entertainment channels in India and a streaming service, together with Zee could have had a portfolio of 90 plus channels.
“The failure of the Zee-Sony merger will be disappointing for shareholders – this merger had the potential to materially change industry dynamics,” news agency Reuters quoted Hetal Dalal, president and chief operating officer of Institutional Investor Advisory Services, as saying.
Sony said it did not expect any material impact from the termination to its estimates for the year ending in March as it did not factor in the deal to its outlook.
Sony Zee Deal
Sony Group Corp on Monday said it is calling off a USD 10 billion merger of its India unit with Zee Entertainment, following a stalemate over who will lead the merged entity.
The entertainment giant sent a termination notice to Zee on the deal, which was announced more than two years back, and is seeking USD 90 million as break-up fees for violating the terms of the merger pact and “invoking arbitration”.
The deal was seen as crucial for both companies to survival in the world’s fastest-growing large economy.
The deal would have created an entertainment conglomerate with more than 70 Indian TV channels, popular Bollywood studios and an extensive film library to take on global powerhouses Netflix and Amazon.
“Sony Pictures Networks India Pvt Ltd (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. relating to the merger of ZEEL with and into SPNI, which was previously announced on December 22, 2021,” the Japanese firm said in a statement.
The definitive agreements provided for the merger to close within 24 months. On the expiry of such a period, the deadline was extended by a month.
“The merger did not close by the end date as, among other things, the closing conditions to the merger were not satisfied by then,” the filing said.
Sony said it was “extremely disappointed that the conditions to the merger were not satisfied” by the deadline, which had been set as January 21. The company added that it “remained committed to growing our presence” in India.
The Sony-Zee deal, which won approval from regulators in August, would have created a USD 10 billion entertainment behemoth in which Sony was supposed to own a 50.86 per cent stake, with Goenka’s family owning 3.99 per cent.
The merger, which would have created a USD 10-billion entity, had already received regulatory approvals from NCLT, fair trade regulator CCI, bourses NSE and BSE, shareholders and creditors of the company.
However, an interim order by Sebi barring Essel Group chairman Subhash Chandra and Goenka from holding the position of a director in any listed company aftermarket regulator found them diverting funds from the company, changed the game.
Though the Sebi order was stayed by the Securities Appellate Tribunal, Sony is not comfortable with Goenka leading the merged entity during the probe due to the stringent corporate governance policy in Japan.
The combined entity would have owned over 70 TV channels, two video streaming services (ZEE5 and Sony LIV) and two film studios (Zee Studios and Sony Pictures Films India), making it the largest entertainment network in India.
Sony had plans to invest USD 1.575 billion in the merged entity and have a majority stake. Chandra family was also free to increase its shareholding from the current about 4 per cent to up to 20 per cent.
(With agency inputs)
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