Japanese multinational conglomerate, the Sony group (6758.T) has sent a termination letter to an Indian entertainment and media company, Zee (ZEE.NS) to scrap the $10 billion merger of their India operations. The scrapping of this merger arose due to a deadlock over who will be leading the merged entity, a source with direct information about the matter reported on Monday morning.
The scrapped deal was of much significance for the survival of both the companies given the competitive nature of the Indian entertainment industry. Moreover, this move also gives a clear headway to an imminent merger between Disney (DIS.N) and the media company of Reliance Industries (RELI.NS).
Sony, while reporting to Bloomberg news earlier on Monday, cited the unmet terms and conditions of the agreement as the main reason for the termination of the deal. Whereas, Zee restrained from any initial comments when approached by Reuters.
The company will be sharing the termination letter with the securities and exchange commission later in the day.
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In the Background
The merger between Sony’s Indian operations and Zee entertainment, signed more than two years ago, had been under immense pressure for the past couple of months on a deadlock over who will be operating the merged entity.
Zee proposed Punit Goenka, Managing Director and CEO, as the main man to run the merged entity. However, Sony refused citing a market probe on Goenka from the regulator.
The negotiations were still in view until last week when Zee reported on Friday that “it is committed to the deal and will be working to close the deal through good faith negotiations”. It seek an extension to the 20 January’s deadline to finalize the deal.
However, early on the first day of the week, Sony sent a termination letter to Zee entertainment over finishing the deadline, marking the end of the India merger.
Karan Taurani, an analyst at Elara Capital said that, “a deal collapse will have a negative impact on both parties as they are looking at scaling up in the Indian market which is going through a digital disruption and a potential threat of increased competition intensity if the Reliance-Disney deal goes through.”
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Zee’s other Vows
Zee is also fighting other vows in addition to the merger termination from Sony. It is currently contending with declining advertising revenues, decreasing cash reserves and a dwindling bottom line.
It is not only facing serious competition from the local entertainment companies, but also from the streaming giants, Netflix (NFLX.O) and Amazon prime (AMZN.O), who are fighting to gain market share in the world’s largest entertainment consuming market.
Moreover, Zee’s four year pact with Disney’s Star for TV broadcasting rights of cricket events will also be at risk if the deal collapses with Sony. In result, Zee would have to pay more than $1.32 billion over the duration of the deal.
Zee also missed an earlier deadline in January to pay its $200 million dues, Bloomberg News reported on 9th January. The company’s shares listed on Mumbai’s stock exchange had been down by 1.5% on Saturday.
