Zee shares skid on Sony plans to call off $10 billion merger deal

Japanese conglomerate Sony Group is calling off a merger of its India unit with Zee Entertainment Enterprises Ltd (Zee), Bloomberg reported, citing unidentified people aware of the matter.

Shares of Zee Ltd declined on Tuesday by about 14% on news that the merger deal may called off due to a standoff over whether Zee’s chief executive officer (CEO) Punit Goenka would lead the merged entity, the report said.

In the deal, which was signed in 2021, both companies had agreed that Goenka would lead the new company. However, Sony no longer wants him as CEO in the wake of a regulatory probe, the report said, adding that the termination notice may be filed before a 20 January deadline for closing the deal.

Talks are said to be ongoing between both firms and a resolution may emerge ahead of the deadline.

The news of the collapse of the merger deal is false and baseless, Zee informed the exchanges on Tuesday.

“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,” it said in the statement.

Last month, the reappointment of Zee’s two independent directors was rejected while a third pulled out before the annual general meeting (AGM).

On 16 December, Zee told the exchanges in a statement that two resolutions seeking the reappointment of independent directors Vivek Mehra and Sasha Mirchandani were defeated as the proposals failed to get approval from 75% of shareholders, the requisite for special resolutions.

The reappointment of Adesh Kumar Gupta, another independent director, became infructuous after he withdrew his candidature on 13 December, three days before the AGM, citing personal reasons, it said in the statement.

Analysts had cautioned that the voting pattern showed minority investors were wary of the final outcome of the merger.

A cancellation of the merger deal comes even as Reliance Industries Ltd and Walt Disney have begun the due diligence procedures for a potential merger that would combine two streaming services and 120 television channels to create a mega media brand.

Reliance-owned Viacom18 will set up a step-down subsidiary, absorbing a significant portion of Disney’s Star India stock via a share-swap, resulting in a 51:49 shareholding structure, with Reliance owning 51% and Disney 49%.

Jio Cinema will also be included in the merger, with Reliance expected to retain a significant stake and pay cash for controlling stock in the merged entity.

Zee and Sony had tied up the agreement to create a media brand valued at $10 billion that would take on entertainment and streaming giants such as Netflix Inc. and Amazon.com Inc.

On 21 December, Zee had sought an extension to the deal’s deadline, seeking an additional month. Sony, however, wanted to discuss the completion of essential final steps for the deal.

Earlier, in June, markets regulator Securities and Exchange Board of India (Sebi) had accused Zee of faking loan recoveries to mask private financial transactions by its founder, Subhash Chandra.

The regulatory body, in an interim order, found Chandra and his son, Zee chief executive Goenka, guilty of misappropriating funds and restricted Goenka from holding executive or director roles in publicly traded firms.

Goenka had successfully appealed against the ruling, but Sony still considers the ongoing investigation a significant concern regarding corporate governance, Bloomberg had reported.

According to the 2021 deal framework, Sony Pictures Networks India Pvt. Ltd would acquire a majority stake of 50.86%, while Goenka’s family would retain a 3.99% share.