Sony Group of Japan issued a termination letter to Indian television broadcaster Zee Entertainment on Monday (January 22), with the intention of canceling the $10 billion merger plan between the two companies in India.
According to the terms of this transaction, this merger should be completed before December 21, 2023, including obtaining approval from regulatory and other departments, with a one month grace period (i.e. until January 21, 2024).
Unable to reach a consensus on the conditions
Sony stated that the company has been sincerely discussing the extension of the termination date, but the deadline for discussion has passed and the two parties have not reached an agreement on the extension of the termination date.
The failure of both parties to meet the conditions of the merger agreement is the main reason for the termination of the agreement. Sony pointed out, "After more than two years of negotiations, we are very disappointed that the conditions for achieving the merger have not been met... We are still committed to expanding our presence in this dynamic and rapidly growing market."
Although Sony did not specify on Monday which conditions were not met, it is reported that the two sides are deadlocked on the question of who should lead the merged company.
Zee proposed to be led by the company's CEO Punit Goenka, but Sony rejected the proposal due to market regulatory investigations into Goenka.
Last year, the Securities and Exchange Commission of India banned Goenka from serving as a director in any listed company. Although the committee later lifted the ban on him, it stated that he must cooperate with any investigations by regulatory agencies.
The negative impact of failed mergers and acquisitions
This deal, announced more than two years ago, aims to create a media industry giant and is considered crucial for both companies. At present, competition in the market is becoming increasingly fierce. At the end of last year, there were reports that Disney's Indian subsidiary and Mukesh Ambani's Reliance Industries planned to merge their Indian media business.
Zee is currently facing multiple issues, including declining profits, advertising revenue, and cash reserves, while global streaming giants such as Netflix and Amazon are also competing for market share.
Last Friday, Zee also stated that it will be committed to a merger and is working to complete the transaction through "sincere negotiations".
However, the news of the termination of the merger has arrived, according to Karan Taurani, an analyst at Elara Capital. "The failure of the transaction will have a negative impact on both parties as they are both considering expanding the Indian market, which is undergoing a digital upheaval. If the deal between Reliance and Disney is successfully completed, competition may intensify."
Analysts also suggest that if the deal breaks down, the four-year agreement reached between Zee and Disney's Star regarding the broadcasting rights of some cricket matches will also face risks. During the term of the agreement, Zee is required to pay between 1.32 billion and 1.44 billion US dollars.
What is Zee's statement?
Zee stated in a statement on Monday that Sony is seeking $90 million in severance pay and emergency relief, and plans to take arbitration.
Zee has refuted all of Sony's claims and stated that appropriate legal action will be taken. The company also revealed that it had proposed extending the transaction for up to 6 months to complete the transaction, but it was not accepted by Sony.
The company stated in a regulatory document, "The company is evaluating all available options and taking all necessary measures to safeguard the long-term interests of stakeholders in accordance with the guidance of the board of directors."
Zee CEO Goenka wrote on social media platform X that he believes the failure of Sony's acquisition deal is a "signal from God", adding that he will move forward by strengthening the company.