Sony scraps $10 billion merger with Zee

Zee Entertainment Enterprises witnesses 10% stock plunge after merger fallout

Sony Group Corp officially terminated its much-anticipated $10 billion merger with Zee Entertainment Enterprises Limited (ZEEL) on Monday, putting an end to two years of negotiations. The termination comes amid a wave of concerns over Zee’s corporate governance and a significant dip in its stock value.

According to Sony’s 62-page merger termination notice, the closing conditions of the merger were not met by the agreed-upon end date, leading to the cancellation of the deal. Zee had sought an extension of the deadline, but Sony formally asked to halt the merger while simultaneously pursuing a termination fee of $90 million. Sony has escalated the matter by initiating arbitration proceedings against Zee, alleging breaches on the part of the Indian media giant.

Contrary to Sony’s claims, Zee contends that its CEO, Punit Goenka, was willing to step down in the spirit of facilitating the merger. Despite engaging in “good faith discussions” for 30 days after the end date, the two parties failed to agree upon an extension by the January 21 deadline.

The aftermath of the terminated merger has had immediate repercussions on Zee’s financial standing, with its stock plummeting by 10% in the opening trade on January 23. Brokerages are predicting a sharp decline in Zee’s valuation, prompting a series of downgrades.

The cancellation has also reignited concerns about Zee’s corporate governance, particularly in the wake of the unprecedented promoter share pledging crisis in 2019. During that crisis, the company’s promoters, the Essel Group, repaid loans through multiple stake sales to investors.

Meanwhile, financial analysts at CLSA highlight the considerable competitive challenges anticipated for Zee in the media sector. The reported merger of Reliance and Disney Star poses additional hurdles, further dampening investor sentiment.

As both Sony and Zee navigate the fallout from the failed merger, industry stakeholders are closely watching how the arbitration proceedings unfold and how Zee addresses the challenges to its corporate governance and market competitiveness.