Japan’s Sony Group (6758.T) announced on Monday the termination of a $10 billion merger deal with Zee Entertainment (ZEE.NS) concerning their Indian operations.
The termination comes after a prolonged impasse over the crucial decision of who would lead the combined entity.
Deal Background and Competitive Landscape:
The merger, initially announced over two years ago, was seen as essential for the survival of both companies in the highly competitive Indian market.
The impending merger between Disney’s (DIS.N) Indian businesses and the media assets of Mukesh Ambani’s Reliance Industries (RELI.NS) added urgency to the deal.
Sony stated that it had engaged in discussions to extend the end date in good faith, but the negotiation period expired without an agreement.
The unmet conditions of the merger agreement were cited as the reason for termination. The announcement did not specify the specific unfulfilled conditions.
Leadership Dispute and Regulatory Probe:
The deadlock over selecting the leader for the combined company emerged as a major hurdle. Zee proposed CEO Punit Goenka, but Sony expressed disagreement, citing an ongoing market regulator probe into Goenka.
Sony emphasized that it did not anticipate a material impact on its fiscal 2024 results due to the termination, as the deal had already been factored out of its outlook.
Zee’s Response and Market Analyst Insights:
Zee, yet to respond to Sony’s termination notice, had previously expressed commitment to the merger and was seeking an extension to the January 20 deadline.
Analysts warn of a negative impact on both parties, considering the strategic importance of scaling up in the Indian market amid digital disruption and potential increased competition from the Reliance-Disney deal.
Facing financial challenges with declining profits, advertising revenue, and cash reserves, Zee competes in a market where global streaming giants like Netflix (NFLX.O) and Amazon.com (AMZN.O) are vying for market share.
Risks to Broadcasting Rights and Missed Deadline:
Zee’s four-year pact with Disney’s Star for TV broadcasting rights of certain cricket events is at risk if the deal collapses.
Analysts estimate Zee would have to pay $1.32 billion to $1.44 billion over the agreement’s tenure. According to Bloomberg News, Zee reportedly missed an early January deadline to pay $200 million.
Zee shares closed 1.5% lower in a Saturday trading session in Mumbai, with the market closed on Monday for a public holiday in Maharashtra state. The situation reflects the uncertainty and potential challenges both companies may face after the terminated merger deal.