Sony Entertainment Television’s (SET) ambitious plan to merge its Indian arm with Zee Entertainment in a $10 billion deal has been called off, citing Zee’s failure to meet crucial financial terms. According to a termination notice reviewed by Reuters, SET abandoned the merger due to Zee’s inability to fulfill specific financial requirements and devise a viable plan to address them.
Dispute Over Allegations and Termination Fee: Sony Zee Merger
In a letter to SER, Zee Entertainment disagreed with these claims, which Reuters also saw, saying that Sony acted unfairly by canceling the merger. The Zee-Sony merger aimed to create a media behemoth in India, boasting over 90 sports, entertainment, and news channels. However, Sony terminated the plans on January 22, citing unmet “closing conditions” after two years of negotiations. The contents of the termination notice were not made public by either Sony or Zee.
According to Sony’s notice, Zee had failed to make commercially reasonable efforts to meet certain financial thresholds, including cash availability, while demonstrating a “lack of commercial prudence,” ultimately contributing to Sony’s decision to terminate the merger.
In response, Zee denied all of SET’s allegations and deemed the demand for a termination fee of $90 million as “legally untenable.” Zee asserted that Sony’s termination was executed in bad faith and requested the withdrawal of the notice.
Fallout and Investor Concerns
Despite Zee’s silence on the matter and SET’s lack of response to Reuters queries, the fallout from the collapsed deal has been significant for Zee. The company’s shares plummeted approximately 30%, reflecting investor concerns about its business struggles.
Zee’s advertising revenues have declined, and its cash reserves have dwindled, further complicating the merger prospects. SET pointed out in its termination notice that Zee’s cash position fell significantly below the requirements outlined in the merger agreement, raising further doubts about the deal’s feasibility.
Additionally, Reuters reported concerns regarding Zee CEO Punit Goenka’s involvement in a regulatory investigation for the suspected diversion of company funds, adding another layer of complexity to the failed merger. Ultimately, SET concluded in its termination notice that Zee could not realistically assess the timeline needed to address the outstanding issues, leading to the collapse of the merger agreement.
