Deadline over; Sony not keen to extend good faith negotiations with Zee, $10 billion merger likely terminated

MUMBAI: Sony Group Corp is unlikely to extend the good faith negotiations with Zee Entertainment Enterprises Ltd. (ZEEL) — whose deadline was supposed to lapse on midnight of January 21, said people aware of the matter. This would mean the likely termination of the proposed $10 billion merger between its India operations and Zee to create the largest media giant in the country. Zee sought an extension of the “good faith” negotiations last week.

A formal communication calling off the mega amalgamation first announced in December 2021 is expected to be sent to the Tokyo exchanges in the next forty-eight hours, said people aware.

The chairman of the Zee Entertainment board or Punit Goenka, the MD and CEO of the company will also be informed, the people mentioned above added.

Sony Global’s spokesperson was not available for an immediate comment late on Sunday night.

Sony chose not to continue with the negotiations for the lapses by Zee in complying with what are called conditions precedents (CP) in legalese and for the failing financial health of Zee Entertainment.

This has been adding to the simmering discontentment between the suitors, who thus far couldn’t agree on ZEEL MD Punit Goenka being the CEO of the merged entity until he’s cleared of charges that he siphoned off money from the publicly traded firm to closely held companies owned by his family’s Essel Group. The Goenka family owns 3.99% equity in ZEEL. The rest are owned by public and institutional shareholders.People close to Sony said the multinational has offered Goenka the role of advisor at the new company, but said he should not be on the board, pending regulatory investigations.Sony has been rooting for NP Singh, its India MD and CEO, as chief executive of the new entity in the interim unless Goenka is exonerated in all pending cases.

ET was the first to report on January 9 that Sony was on the brink of halting the deal. On January 19 it was also the first to report Group Corp had called for a board meeting last Friday, where it’s expected to take a call on the merger and that a likely termination was expected as early as Monday, January 22 or January 23.

Some were expecting a last-minute change of heart from Goenka although sources close to Sony said it’s unlikely to take place. Moreover, even if Goenka agrees to step down on January 19, the various CPs will have to be audited, and final adjustments made to the company’s finances. Since the merger was announced, Zee’s net profit has plummeted to Rs 48 crore in FY23, from Rs 956 crore in FY22 and Rs 793 crore in FY21.

The termination is likely to stir shareholder activism, believe many market participants. Indian mutual funds and insurance companies including LIC own 31% of the company.