Sony-Zee stares at end of road over disagreement about CEO
The media giants failed to agree on who would lead the combined entity, with the Japanese conglomerate disinclined to have Zee’s Punit Goenka at the helm
Mumbai: Sony Group Corp. is set to pull the plug on the proposed $10-billion merger of its India unit with Zee Entertainment Enterprises after more than two years of negotiations.
The deal unravelled as the media giants failed to agree on who would lead the combined entity, with the Japanese conglomerate disinclined to have Zee’s Punit Goenka at the helm, said two people with direct knowledge of the developments.
Sony Pictures Entertainment, the holding company of Culver Max Entertainment (earlier Sony Pictures Networks India), will send a deal termination notice to ZEE early next week, one of them said. The Sony Corp. board is expected to finalize the decision shortly.
On 10 November, Mint was the first to report that the talks had stalled after Sony’s demand that its executive lead the merged entity instead of Goenka, and that failure to reach an agreement by 21 December could derail the merger.
The two companies extended the deadline by a month but failed to iron out their differences.
“It’s over,” said the second person aware of the developments. “After two years and multiple meetings and late-night calls, there is absolutely no meeting of minds anymore in this proposed merger. Sony stands resolute that they can’t allow Punit to be the CEO of the merged company or even a board seat as he is under investigation for alleged diversion of funds.”
Zee and Sony did not immediately reply to queries on the state of the proposed merger.
However, Zee said in a statement to BSE that it continues to work towards a successful closure of the merger.
It said it was “not aware of, and cannot comment on” any board meeting held or proposed to be held by Culver Max, given that these are internal matters of Sony.
Goenka, the managing director and chief executive of Zee, had been proposed to be the MD and CEO of the merged entity as per the original deal terms signed in 2021. He offered to step aside from leading the combined entity following Sony’s insistence but was keen on keeping a board seat, the people mentioned above said.
To be sure, it was Sony that had stepped in as a white knight in December 2021 when Zee’s largest shareholder, Invesco, had demanded Goenka’s ouster.
Invesco, an American financial investor that once held an 18% stake in Zee, has since sold its entire stake in the company over multiple tranches between April 2022 and April 2023.
Sony had agreed to take over Zee and merge it with its Indian arm in a deal that would have created an entertainment giant commanding an estimated 28% of the domestic market.
Currently, Zee Entertainment commands a 20% share of India’s television-viewing audience, behind market leader Disney Star’s more than 30% share. Reliance Industries-controlled Viacom18 Media Pvt Ltd has a 10% claim on the market, and Sony about 8%.
If Reliance’s talks with Disney Star for a possible deal go through, the combined Disney-Viacom entity would be the largest broadcaster in India with over a 40% market share.
“It will be unfortunate and negative for both Zee and Sony if the deal doesn’t happen, as both will become small given Reliance and Disney are likely to have a deal,” said Abneesh Roy, executive director at Nuvama Institutional Equities.
Under the proposed Sony-Zee deal, Sony was to own 50.86% of the merged entity, and Zee’s promoters (Goenka family) 3.99%. The remaining 45.15% was to remain with public shareholders.
The proposal had received most regulatory approvals, including from the stock exchanges and the Competition Commission of India. But financial creditors of Zee’s promoter family had moved the National Company Law Tribunal, which dismissed the case in August last year, allowing for the deal to move ahead.
Earlier, though, on 25 April, the Securities and Exchange Board of India had accused Subhash Chandra, founder of Zee, and his son Goenka of diverting at least ₹200 crore from the company via certain promoter group firms.
Goenka challenged the order before the Securities Appellate Tribunal, which set aside the order pending completion of Sebi’s probe.
As Sebi is still investigating the matter, Sony was unwilling to let Goenka be the CEO of the new entity. The Japanese media giant has been pitching its India head, N.P. Singh, to be the CEO of the merged entity. Goenka was opposed to this.
With the curtains finally drawing on the merger, it is unlikely that any party can sue the other for damages as the two-year window for finalising the deal has been exhausted.
Both the companies would now have to move NCLT again to withdraw the merger proposal, said the first person mentioned earlier.
Shares of Zee Entertainment fell 6.33% on Friday to end at ₹232.50 on NSE.
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First Published:19 Jan 2024, 07:48 AM IST
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