Sony begins talks with Disney to buy India biz

Sony’s patience with the ZEE merger is running thin.
Sony’s patience with the ZEE merger is running thin.


The talks are part of Sony's contingency plan in case Zee deal collapses

Mumbai: Sony Pictures Entertainment (SPE), the global entertainment unit of Japan’s Sony Group Corp., has initiated talks with Walt Disney Co. about a potential acquisition of its India business, said two people with direct knowledge of the matter.

The preliminary discussions with Disney are part of Sony’s contingency plan in case its ongoing merger agreement with Zee Entertainment Enterprises Ltd faces inordinate delay or collapses, the people said, requesting anonymity.

“The merger with Zee was in the works for almost two years and has seen its fair share of hiccups. SPE’s parent in Japan is getting frustrated with the delay and has asked to be prepared with a Plan B," one of the people said.

Disney Star is a leading entertainment company in India. It operates more than 70 multilingual TV channels and the popular Disney+Hotstar online streaming service. Several entities, including Reliance Industries (the owner of Viacom18), the Adani Group, and Sun TV Network, have explored the acquisition, either in full or in part, of Disney’s Indian business.

Email queries sent to spokespeople for SPE and Disney did not receive responses.

Industry experts said Disney’s India business may fetch only a fraction of its previous value given the evolving media and entertainment landscape globally and in India. While the linear entertainment business generates over $500 million in profits, the sports and digital segments have incurred losses. When Disney acquired Star India as part of its $71.3 billion deal to acquire Rupert Murdoch-owned 21st Century Fox, the Indian business was valued at $17 billion.

Sony’s patience with the ZEE merger is running thin. “A lot has changed in the last two years in the media and entertainment space. Most importantly, Disney India was not up for sale until six months back. Now that it is, top bosses in SPE see Disney India as a better proposition, one where they have cultural similarities, too," said the second person. These discussions are in the preliminary stages, and Sony will only pursue them if the Zee deal collapses. “But they don’t want to waste any more time and will proceed aggressively if that happens, as the opportunity cost would be too high," the second person added.

Notably, both Tony Vinciquerra, chairman and CEO of SPE, and Ravi Ahuja, chairman of global television studios and corporate development at Sony Pictures, have had previous roles at Fox and Disney, respectively. Before joining Sony in March 2021, Ahuja was president of business operations and chief financial officer of Walt Disney Television, where he played a pivotal role in merging Disney/ABC Television and Fox Networks after Disney acquired Fox in early 2019. Ahuja was also CFO of the Fox Networks Group before the acquisition by Walt Disney. Vinciquerra spent almost 10 years at Fox (2001-2011) where he served as chairman and CEO of Fox Networks Group.

The India business of Disney, encompassing Star India and Disney’s existing India operations, has faced a significant drop in valuation due to the loss of key leaders and the discontinuation of content deals with select studios, including HBO. This decline in value is further compounded by Disney’s decision to hold digital rights only for ICC events, departing from its previous hold over top cricket properties of the ICC, the BCCI, and the Indian Premier League.

The dynamic nature of the media and entertainment sector is also evident in Disney’s shift towards its streaming business globally, emphasizing streaming platforms.

Bob Iger, CEO of Walt Disney, said in an interview with CNBC in July that the company was looking to sell many of its linear television properties, stating the properties “may not be core to Disney".

Last month, Bloomberg reported that Disney held exploratory discussions on selling its linear assets in the US—ABC and other TV networks—to local broadcaster Nexstar Media Group. Bloomberg in India also said Reliance Industries, Adani Group and Sun TV Network have had initial talks with the company for Disney’s India business.

Meanwhile, the movement in the Zee-Sony merger has continued progressing despite these discussions. Integration meetings with the Boston Consulting Group (BCG) are proceeding according to the plan, Sony executives said, requesting anonymity.

In December 2021, Sony Pictures Networks India (SPNI) agreed to merge with Zee. This deal involved SPE, the indirect parent of SPNI, committing to invest around $1.06 billion as growth capital for the merged entity, along with a non-compete fee of $147 million paid to Zee’s founders.

The deal was initially expected to close by 31 March 2022. However, it was only on 10 August the following year that the Mumbai bench of the National Company Law Tribunal (NCLT), finally gave its permission to the merger after lengthy hearings where multiple financial lenders to ZEE promoters opposed the scheme. While the merger scheme is now approved, the Indian markets regulator has now barred Zee’s Punit Goenka, who was to be named managing director and CEO of the merged company, from holding any key position in the combined entity.

In a confirmatory order issued on 14 August, the Securities and Exchange Board of India (Sebi) accused Goenka of siphoning off funds and money circulation through related entities and said it would complete the investigation within eight months. While Goenka has challenged the order in the Securities Appellate Tribunal (SAT), it has further delayed the merger.

Last month, Sony said in a statement, “Although the transaction was previously expected to close by the end of the first half of the fiscal year ended on 31 March 2024, based on the latest progress, it is currently expected to close in the months ahead. Sony continues to assess the impact of the transaction on its consolidated financial results."

A senior media executive who has worked with SPNI in the past said that the acquisition of Disney also makes more sense from Sony’s point of view. “What Zee was in 2021 compared to what the company’s financials are today is a completely different story. It continues to be an asset but is not the most attractive. Secondly, even if SAT grants a stay order in Goenka’s case, the investigation might continue, meaning Sony can not name him the managing director and CEO. This was one of the terms of the deal. While Punit has said in media interviews that he is committed towards the merger, with or without him, finding a leader for such a big company will be difficult in a short time," he said, requesting anonymity.

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