Sony Group has called off the merger of its India unit with Zee Entertainment Enterprises Ltd (Zee), the Japanese entertainment giant said in a statement, even as Zee said it is weighing legal options.
Sony had sent a termination letter to Zee earlier on Monday, Bloomberg reported, citing unidentified people aware of the development.
“Today, we issued a notice to cancel the definitive agreement regarding the merger with Zee,” Sony said in a statement, officially bringing a two-year merger process to an end.
“The merger will not be completed by the deadline date primarily because the preconditions for consummation of the merger were not met,” the statement said, citing the reason for calling off the deal.
The letter did not elaborate on the preconditions, but said the “impact of the merger has been factored into its results already”.
“The impact of this merger has been factored into the consolidated financial results forecast for the full year 2023, which was announced on 9 November. Therefore, the impact of the cancellation of the firm contract related to this merger on the company’s consolidated results will be minimal,” it said.
Sony’s statement came as a 30-day grace period on a deadline set in late December ended over the weekend.
The letter said that should the merger not be finalized within 24 months from the signing of the definitive agreement in December 2021, both parties had agreed to consider extending the deadline to facilitate the merger’s completion in a timely manner.
This extension required mutual consent at the end of the negotiation phase, within 30 days following the original deadline. In the absence of such an agreement, either party was authorized to end the definitive contract through written notification to the other, the letter said.
Sony said that despite its efforts to negotiate an extension, the consultation period concluded without a consensus, following which it has opted to terminate the official contract.
Both companies had hit a stalemate over the role of Zee chief executive Punit Goenka in the merged entity after regulator Securities and Exchange Board of India (Sebi) launched a probe against him last year.
Zee confirmed that it received communications from Sony regarding the termination of merger proceedings.
Sony has also sought a termination fee of $90 million for alleged breaches, invoking arbitration and seeking interim relief against Zee, a statement issued by the Goenka-led company said.
On the negotiations with Sony, Zee said it had proposed an extension of a maximum period of six months for the consummation of the transaction but it did not receive any counter-proposal for an extension from Culver Max.
The company said Goenka “was agreeable to step down in the interest of the merger and proposals in this regard were discussed, including for appointment of a director on the board of the merged company, protections for the conduct of pending investigations and legal proceedings.”
The parties, however, failed to arrive at a consensus.
“The board has noted that the company took all the required steps in the course of its integration journey over the last two years, to ensure that the scheme is implemented at the earliest,” Zee chairman R. Gopalan said.
He added that the company will take all necessary actions, including taking appropriate legal action and contesting Sony’s claims in the arbitration proceedings.
Goenka, who was in Ayodhya to attend the consecration ceremony of Ram temple, said he had spent two years “envisioning and working” toward the deal, which fell through “despite my best and most honest efforts”.
“I resolve to move ahead positively and work towards strengthening Bharat’s pioneering M&E company for all its stakeholders,” he said in a post on X (formerly Twitter).
According to the merger cooperation agreement signed between the two parties on 22 December 2021, Culver Max Entertainment Ltd (Sony Pictures Networks India Pvt. Ltd earlier) would acquire a majority stake of 50.86%, while Goenka’s family would retain a 3.99% share.
While the majority of the board of directors of the combined entity would be nominated by the Sony Group, Goenka would lead the new company, as per the agreement.
As the merger process was on, in June 2023, Sebi accused Zee of faking loan recoveries to mask private financial transactions by its founder and Goenka’s father, Subhash Chandra.
The regulatory body, in an interim order, found Chandra and Goenka guilty of misappropriating funds and in violation of norms to prevent fraud.
The Sebi order restricted them from holding executive or director roles in any of the publicly traded Zee group companies, including Zee Entertainment.
While Goenka successfully appealed against the order in a tribunal, which set aside Sebi’s ruling, Sony refused to allow Goenka to lead the new entity due to its stringent corporate governance policies.