Sony calls off merger with Zee; seeks $90 million in termination fee

After two years of hectic negotiations, Sony Pictures Networks India Private, a wholly-owned subsidiary of Sony Group Corporation of Japan, issued a termination notice to Zee Entertainment Enterprises on their merger agreement on Monday. The Japanese firm has sought $90 million in termination fees from Zee. Zee board said it would take all steps to protect the interest of all shareholders.

The merger would have created a $10 billion entertainment giant with a market share of 25 per cent among the general entertainment channels.

Zee said its board took on record communications received from Culver Max Entertainment Pvt, (formerly Sony Pictures Networks India) (“Culver Max”) and Bangla Entertainment Pvt. to terminate the merger cooperation agreement dated December 21, 2021, and seeking a termination fee of $90 million on account of “alleged breaches” by Zee of the terms of the merger agreement, invoking arbitration and seeking interim reliefs against ZEEL.

“ZEEL categorically denies all the assertions raised by Culver Max and BEPL on the alleged breaches under the terms of the MCA, including their claims for the termination fee,” Zee said.

The Board of Directors noted that ZEEL took all efforts and steps in line with the merger cooperation agreement, approved by its shareholders and all regulatory authorities. ZEEL has consistently worked towards implementing the mentioned scheme in the interest of the shareholders. ZEEL also held several deliberations and good faith negotiations with Culver Max and BEPL, with a view to considering an extension of the merger completion timeline, which did not materialise, Zee said.

Based on the guidance received from the board, the ZEEL said it would take all the necessary steps to protect the long-term interests of all its stakeholders, including by taking appropriate legal action and contesting Culver Max and BEPL’s claims in the arbitration proceedings.

ZEEL had inked the merger cooperation agreement with Culver Max and BEPL on December 21, 2021, in relation to the composite scheme of the arrangement, which was approved by the Mumbai bench of the National Company Law Tribunal (NCLT) in August 2023.

Under the MCA, in December last year, ZEEL exercised its right to require Culver Max and BEPL to enter into good faith negotiations for 30 days to arrive at a mutual agreement on the extension of the end date by a reasonable period for completion of the transaction as per the terms of the MCA.

“During this period, despite conducting numerous deliberations in good faith, the parties failed to arrive at a consensus on the purported pending conditions precedent that required action on the part of both ZEEL and Culver Max, BEPL under the terms of the MCA. Punit Goenka, MD & CEO of ZEEL, was agreeable to step down in the interest of the merger and proposals in this regard were discussed, including the appointment of a director on the board of the merged company, protections for the conduct of pending investigations and legal proceedings in the best interest of ZEEL’s directors and shareholders and the consequent modifications to the scheme to incorporate the same, it said.

ZEEL proposed an extension of a maximum period of six months for the consummation of the transaction. However, Culver Max did not provide any counter-proposal for an extension. These discussions did not result in any proposal from Sony, but they have rather chosen to terminate the agreement.

R Gopalan, chairman of ZEE Entertainment Enterprises Ltd., said: “The board of directors has taken note of Sony’s letters purporting to terminate the Merger Cooperation Agreement on the Company’s proposed merger with and into Culver Max Entertainment Pvt Ltd, invoking arbitration and seeking interim reliefs. We are evaluating the next steps and considering the appropriate course of action. The board has noted that the company took all the required steps in the course of its integration journey over the last two years to ensure that the scheme is implemented as soon as possible. That said, the board would like to assure its stakeholders that the company will take all the necessary actions in the best interest of all stakeholders, including by taking appropriate legal action and contesting Culver Max and BEPL’s claims in the arbitration proceedings,” the statement by Zee said. “We recognise and value the trust our shareholders and stakeholders place in us, and we express gratitude for their continued support,” it added.

ZEEL has displayed utmost commitment towards the merger by undertaking several permanent and irreversible steps, resulting in one-time and recurring costs for ZEEL. Despite this, the company will continue to evaluate organic and inorganic opportunities for growth, leveraging the intrinsic value of its assets.

Since the merger was announced, Zee shares have lost 30 per cent of their value. Apart from the fall in the valuation of Zee, Sony was also not keen on Zee’s MD & CEO, Puneet Goenka, becoming the CEO of the merged entity, citing a Sebi order that had banned Goenka from taking an executive position. The Securities Appellate Tribunal (SAT) had set aside the order later. The founder, Subhash Chandra’s family, has only a 4 per cent stake in Zee, and analysts expect large institutional shareholders of the company to take some action on the future of the company.

Both Zee and Sony had earlier agreed to Goenka becoming the CEO of the merged entity. In a statement, Sony said its discussions with Zee were required to be held for a period ending 30 days after the end date. The definitive agreements further provided that if the parties are unable to agree upon such an extension by the end of the 30-day discussion period, any party could terminate the definitive agreements by providing written notice.

“The merger did not close by the end date as, among other things, the closing conditions to the merger were not satisfied by then. SPNI has been engaged in discussions in good faith to extend the end date, but the discussion period has expired without an agreement upon an extension of the end date,” Sony said in its statement.