 "Sony scraps $10 bn Zee merger deal; seeks $90 million in termination fees")
After two years of hectic negotiations, Sony Pictures Networks India (SPNI) on Monday issued a termination notice to Zee Entertainment Enterprises Limited (ZEEL) on their merger agreement. The wholly-owned subsidiary of Sony Group Corporation of Japan has also sought $90 million in termination fees from ZEEL.
Reacting to the notice, ZEEL said it would take all steps to protect the interest of shareholders.
The merger would have created a $10 billion entertainment giant with a market share of 25 per cent among general entertainment channels. “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.
ZEEL, on the other hand, said its board took on record communications received from Culver Max Entertainment (formerly Sony Pictures Networks India) and Bangla Entertainment (BEPL) to terminate the merger cooperation agreement dated December 21, 2021, and seeking a termination fee of $90 million on account of “alleged breaches” by ZEEL of the terms of the merger agreement, invoking arbitration and seeking interim reliefs against ZEEL.
Deal, undone
- Dec 22, 2021: Zee, Sony announce merger to create $10 bn entertainment firm
- Aug 10-11, 2023: NCLT Mumbai approves merger
- Oct 3: SAT sets aside Sebi order against Punit Goenka, allows him to continue as CEO
- Dec 21: Zee, Sony agree to continue talks for another month to salvage the deal
“ZEEL categorically denies all the assertions raised by Culver Max and BEPL on the alleged breaches under the terms of the merger agreement, including their claims for the termination fee,” Zee stated.
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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, it 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’s and BEPL's claims in the arbitration proceedings.
ZEEL had inked the merger cooperation agreement with Culver Max and BEPL 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 agreement, 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 merger agreement.
“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 Merger Cooperation Agreement (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,” ZEEL 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, the former said.
R Gopalan, chairman of ZEE Entertainment Enterprises, in the statement, said: 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.”
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.
ZEEL, in a regulatory filing, as reported by PTI, said it spent Rs 366.59 crore on compliances until September 2023 for its now-failed merger. It had spent Rs 176.20 crore in the financial year that ended in March 2023. Besides, it spent Rs 190.39 crore in the first six months of FY24, it said.
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 Punit 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 ZEEL, and analysts expect large institutional shareholders of the company to take some action on the future of the company.
Both ZEEL and Sony had earlier agreed to Goenka becoming the CEO of the merged entity.
In a statement, Sony said its discussions with ZEEL 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.
Sony within rights to end merger deal: Legal experts
Legal experts said Sony Pictures Networks India (SPNI) was well within its rights to terminate the proposed merger with Zee Entertainment Enterprises Limited (ZEEL). "However, if Zee intends to contest this termination in the court, it has to establish that SPNI did not follow the procedure set out in the definitive agreement in relation to termination," said Anindya Ghosh, partner of IndusLaw.
"Irrespective of any legal actions and claims between the parties, both companies are required to conduct their business independently now by evaluating growth opportunities. Further, both companies are required to assess and plan legal steps to ensure all confidential information shared by each party in the process of merger is kept privileged and confidential and the respective disclosing party should ensure that the respective recipient returns all such confidential information to such disclosing party," he said.
"The options before Zee is to either induct a new strategic partner or it may get acquired by a rival company due to its low promoter stake,” said HP Ranina, a Mumbai based-corporate lawyer.