Two-years of intense negotiation on the eagerly awaited Zee-Sony merger came to an end when Sony terminated the proposal on January 22. What followed was a series of legal threats from Zee and $90 million termination fee demand by Sony.
"Although we engaged in good faith discussions to extend the end date under the merger cooperation agreement, we were unable to agree upon an extension by the January 21 deadline. After more than two years of negotiations, we are extremely disappointed that closing conditions to the merger were not satisfied by the end date," Sony said in its statement issued on January 22.
At the heart of the merger's failure was the inability of the parties to reach a consensus on who would be heading the merged entity. Reports suggested that Zee wanted its CEO and MD Punit Goenka to lead the newly formed firm while Sony wanted its CEO N P Singh to preside at its helm.
Meanwhile, tensions continued to rise as capital markets regulator SEBI imposed a ban on Zee's Punit Goenka prohibiting him from holding any managerial position during an investigation into allegations of fund siphoning. Eventually, SEBI lifted the ban. However, Sony continued to have reservations on giving the reins to Goenka.
The proposed merger aimed to create a formidable 74-channel media giant, granting Sony a substantial market share in Indian media landscape. Sony committed to invest $1.6 billion, expecting to hold 53% in the combined entity. The merged entity was poised to become India's fourth-largest media company behind Google, Meta and Disney-Star.
Also Read: Sony-Zee merger called off: Sony ends talks with Zee due to dispute over leadership of merged entity
The original merger agreement also included a provision for a substantial $100 million penalty if either party chose to walk out. However, this clause became null and void after the expiration of the December 21 deadline.
The termination of deal has also led to legal battles ahead. While Sony is seeking a $90 million termination fee and has invoked arbitration and legal actions against Zee for alleged breaches, Zee has moved the National Company Law Tribunal (NCLT) and Singapore International Arbitration Centre (SIAC) against Sony Pictures Network India's termination of the merger deal.
Also Read: Zee moves NCLAT against Sony India's termination of merger deal
Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court.
Mint quoted media lawyers and said that the next steps in arbitration involve notifying the SIAC if the parties have already chosen arbitrators. If not, Sony will request the SIAC to set up the arbitration tribunal. The outcome of NCLT's decision will play a crucial role in the matter.
Meanwhile, Zee's founder Subhash Chandra in an interview to the Economic Times has accused Sony of intentionally scuttling the deal, questioning Sony's intent behind the now scrapped $10 billion deal despite his firm's offer to have Punit Goenka step aside from the CEO's post. He also went on to threaten criminal action against Sony.
In the interview, Chandra claimed that Zee met all the terms laid out in the deal and it was Sony's "strategy all along to engage with Zee and eventually withdraw, portraying Zee as vulnerable".
Anticipating a long legal battle, a section of Zee's public shareholders have reportedly written to the company seeking details of the chain of events that led to the termination of the merger agreement with Sony Pictures Network. As per Moneycontrol, in a letter addressed to R Gopalan, Chairman of board, the shareholders, comprising foreign portfolio investors (FPI), mutual funds and retail investors, have asked for the contents of Sony’s termination letter to be made public.
The shareholders have also questioned the board of as to why it did not present the true picture of the negotiations with Sony. Meanwhile, the Zee-Sony merger collapse has led to a decline in the Zee shares which have gone down about 32% in the last 5 days.