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Why did Sony Cancel its Merger with Zee?

by Web Desk
Why did Sony Cancel its Merger with Zee?

The merger deal between Sony and Zee Entertainment that was initiated in December 2021 and was going through several rounds of negotiations has been called off. Yesterday, Sony confirmed it had served a termination notice to Zee Entertainment, bringing the curtains down on the proposed $10 billion mega-merger between its India operations and Zee.

The Sony-Zee agreement merger was being done with the aim of establishing India’s largest entertainment company that would possess the financial muscle to compete against global media and entertainment giants like Netflix Inc. and Amazon.com Inc. Furthermore, it would enable the new organization (post the proposed merger) to position itself against local conglomerates such as Reliance Industries Ltd, that is currently in talks with Disney- Star.

In December 2021, Sony and Zee had signed definitive agreements to merge together. Sony was to indirectly hold a majority of 50.86% of the combined company while the founders of ZEEL would hold 3.99%, and the other ZEEL shareholders were to hold a 45.15% stake. The deal was anticipated to conclude within a year. However, two years down the line, the merger still remained incomplete due to various regulatory investigations and legal suits. Among other things, there were legal cases involving Zee and its promoters, including MD & CEO Punit Goenka.

Agreements Stated That Either Party Could Call Off Deal Subject To Certain Conditions

“Sony Pictures Networks India Private Ltd. (“SPNI”) (now known as Culver Max Entertainment Limited), a wholly-owned subsidiary of Sony Group Corporation (“Sony”), today issued a notice terminating the definitive agreements entered into by SPNI and Zee Entertainment Enterprises Ltd. (“ZEEL”) relating to the merger of ZEEL with and into SPNI (the “Merger”), which was previously announced on December 22, 2021,” the company said in a statement.

Agreements between the two had specified that if the merger didn’t happen within 24 months after they were signed (called the “End Date”), the parties had to talk about extending this End Date in a fair way. They needed to have these discussions for a month after the End Date (called the “Discussion Period”). The agreements also stated that if, by the end of the Discussion Period, the parties failed to agree on an extension, either party could end the agreements by sending a written notice.

As per Sony, the merger didn’t happen by the End Date because certain conditions needed for the merger to be completed were not met by then.

Zeel Shares Witness Downslide

Following the call-off of the merger, shares of ZEEL have gone down. Today, Zee Entertainment shares ended 30.5% lower to record the biggest single-day drop. Global brokerage firm CLSA has revised its recommendation on Zee Entertainment by changing it from a previous ‘buy’ rating to a ‘sell.’ This revision also comes in response to the cancellation of the multi-billion mega-merger with Sony Pictures Network. “With Zee-Sony merger being terminated, we believe Zee’s PE will fall back to 12x levels, that were seen prior to the Sony merger announcement in August 2021,” the brokerage firm stated.

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