Zee, Sony to make one last try to save the merger
Summary
Sony Pictures Entertainment and Zee Entertainment Enterprises have agreed to extend the deadline for their $10bn merger by 30 days after failing to find common ground in negotiations.
Mumbai: Facing a Thursday deadline to complete their $10-billion mega-merger that has plodded along for two years, Sony Pictures Entertainment and Zee Entertainment Enterprises Ltd have chosen to give themselves some more time, two persons directly aware of the matter said. The development comes after Sony and Zee failed to find common ground despite protracted discussions, securing regulatory approvals, and spending over ₹300 crore in merger-related expenses.
An agreement between Sony’s India business (Culver Max Entertainment Pvt. Ltd) and Subhash Chandra-founded Zee Entertainment Enterprises Ltd provides for giving extra time of 30 days, if the terms of the merger are not met by either party before the effective date. Mint has seen a copy of the document.
Emails sent to Sony and Zee remained unanswered till press time. However, in a late Wednesday evening filing to stock exchanges, Zee said it is in receipt of a communication from Sony that the latter wants to enter into “good faith" negotiations with a view to discuss the extension of the date to make the scheme effective by a reasonable period of time.
The fate of the country’s largest deal in the entertainment space now depends on the “negotiations and compromises" that Sony and Zee can agree upon to revive the merger talks, said the two persons cited above.
“Most conditions have not been met yet. Large deals carry such a clause to ensure efforts are not turned entirely futile without one last attempt. In this case, Sony and Zee have been compelled to enter such an undesired grace period," said the first person cited above. “Depending on fulfilling the terms that were originally agreed upon, the effective date (of the merger) could be extended during this period, failing which even the scope of extending the timeline to effect the merger shall stand to be null and void," the first person added.
The effective date for completion of the merger has already been extended once in the past.
The agreement outlines: “If the parties are unable to mutually agree to an extended end date within a period of 30 days from the last effective end date (which is 21 December 2023), or if the scheme and all transaction documents have not become effective within the extended end date, any party may terminate this agreement by giving written notice to each of the other parties."
The two persons cited above said that, typically, deals that are pushed into such grace periods end in termination.
In December 2021, Sony had agreed to take over Zee and merge it with the former’s Indian arm to create an entertainment behemoth with over 28% market share.
On 17 December 2023, Zee had requested Sony to extend the date required to make the merger effective. Sony, however, had said then that it was unwilling to extend the effective date, as reported by Mint on 19 December.
The two persons said that apart from other terms of the agreement, Sony’s latest condition given to Zee is to ensure that Chandra’s son Punit Goenka (the current managing director and CEO of Zee), does not seek the position of CEO in the merged entity until he gets a clean chit from the regulators.
Goenka, according to the original agreement, was meant to head the merged entity but Sony demanded him to renounce this position after the Securities and Exchange Board of India (Sebi), 25 April, alleged Chandra and Goenka had diverted funds worth at least ₹200 crore from Zee via certain promoter group firms. The order was challenged by Goenka, who holds 3.9% stake in Zee, before the Securities Appellate Tribunal, which has set aside the order pending completion of Sebi’s probe.
Sebi is still probing the matter, but Sony is unwilling to name Goenka as the CEO of the merged company, fearing that any adverse judgement by Sebi might unnecessarily jeopardize public shareholders’ interest.
Zee’s large public shareholders include Life Insurance Corp. of India (LIC), Nippon Life Mutual Fund, Amansa Capital, HDFC Mutual fund, and ICICI Prudential Mutual Fund, among others.
On 16 December, in Zee’s AGM, shareholders disapproved Goenka-led board’s proposal to reappoint two of Zee’s independent directors Vivek Mehra and Sasha Mirchandani. Another independent director Adesh Kumar Gupta voluntarily withdrew his candidature just three days before the AGM.
Even while the pressure on Goenka mounts with each passing day, Sony has decided neither to extend the merger timeline not to go ahead with any sort of hostile takeover attempt against Chandra or his family. The current market reflects the weakness of the Zee stock, which has lost over 10% in the past two trading days before closing down 7.31% at ₹251.8 apiece on the BSE on Wednesday.
