Zee, Sony bury the hatchet, part ways amicably

After months of court battles over a $90 million (around ₹748.5 crore) termination fee stemming from a failed merger, Sony Pictures Networks India (now Culver Max Entertainment) and Zee Entertainment Enterprises Ltd have finally decided to resolve their disputes amicably through a non-cash settlement, allowing both parties to move on independently.

On 22 January, Sony terminated the merger cooperation agreement and the composite scheme of arrangement originally signed on 22 December 2021. Sony immediately sought $90 million in termination fees, filing an appeal with the Singapore International Arbitration Centre (SIAC). Zee responded by filing an appeal with the Mumbai bench of the National Company Law Tribunal (NCLT), contesting Sony's decision to call off the merger and disputing the termination fee. Zee also initiated legal action to contest the $90 million termination fee.

Also read | Zee-Sony: A deal that was doomed from the start

While the legal battle continued, a breakthrough was announced on Tuesday—just a day after Sony named Gaurav Banerjee as its new managing director and CEO. In a joint statement, the two companies revealed they had reached a "comprehensive non-cash settlement, amicably resolving all disputes”.

Shares of Zee climbed as much as 15% on the BSE, before closing at ₹150.86, up 11.45% from their previous close. Zee shares have fallen over 40% in the last year that has seen the acrimonious separation from Sony.

Sony appointed Gaurav Banerjee, previously head of Hindi entertainment at Star India, after N.P. Singh, who was with Sony for 25 years, stepped down from the position in May. Several challenges have persisted for the Indian arm of the Japanese corporate in India’s entertainment industry even before Singh’s exit, all of which Banerjee will have to take on as he steps into this new role. 

Sony’s GEC (general entertainment channel) ratings have been less than impressive lately, with the company having placed too many bets on non-fiction. Its presence in sports and regional programming is hardly significant and its movie vertical hasn’t ever made news. 

The firm claims it is betting big on its digital business with the fast growth of its streaming platform SonyLIV but much of Sony's content is available for free on YouTube and takes away from paid subscriptions.

Earlier, Zee had disclosed incurring ₹432 crore in merger-related costs during FY23 and FY24. In FY24, the company’s consolidated net profit stood at ₹141.43 crore, while consolidated income was ₹8,766.48 crore. The company also took cost-cutting measures, including a 15% reduction of the workforce.

A clean break

Under the agreement, both companies will withdraw their claims from SIAC and end all related legal proceedings in the NCLT and other forums. The joint statement read, "Under the terms of the settlement, none of the parties will have any outstanding or continuing obligations or liabilities to the other. 

The settlement stems from a mutual understanding between the companies to independently pursue future growth opportunities with a renewed purpose and focus on the evolving media and entertainment landscape, signifying the definitive conclusion of all disputes."

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Sony had previously argued that it had to call off the merger because Zee failed to meet specific financial thresholds and other pre-conditions outlined in the agreement. Despite receiving approval from the NCLT for the merger on 10 August last year, the deal collapsed when Zee couldn't fulfil the necessary conditions.

"After more than two years of negotiations, we are extremely disappointed that the closing conditions of the merger were not satisfied by the end date," Sony said at the time, demanding the termination fee. Zee’s board denied any "alleged breaches" and vowed to fight the claim.

Failed merger

The joint statement now closes the book on what could have been India's largest media merger, potentially creating a $10 billion giant. Despite securing regulatory clearances from the NCLT and the Competition Commission of India, the deal hit a roadblock when the Securities and Exchange Board of India (Sebi) barred Zee MD and CEO Punit Goenka from holding any top management roles for allegedly diverting funds.

Though the ban was later overturned by the Securities Appellate Tribunal, Sony continued to push for Goenka's removal in favour of its nominee. This demand ultimately derailed the merger, as the original agreement stipulated that Goenka would lead the merged entity.

Termination of the merger was expected to pose issues for both companies but the challenges are definitely graver for Zee, according to media experts. Access to capital is critical to stay relevant in the content creation game, and Zee may have limited options as far as partners go. 

On the digital front, Zee’s video streaming platform ZEE5 is yet to make a mark and continues to suffer losses, unlike Sony’s digital business, which is profitable. After winning the bid to ICC events in August 2022, Star India had sub-licensed TV rights for the men’s tournaments to Zee Entertainment Enterprises Ltd for nearly $1.4 billion. 

However, after Zee backed out, Star terminated the agreement accusing it of breach of contract, and initiated arbitration proceedings in the London Court of International Arbitration.