Uncertainty Surrounds Sony-Zee Merger as Good Faith Negotiations Face Setback, Says Report

The prospect of Sony Group Corp extending the good faith negotiations with Zee Entertainment Enterprises Ltd. (ZEEL) beyond the initial deadline of January 21 appears to be low, according to reports. This raises the possibility of the proposed $10 billion merger between Sony's India operations and Zee, aimed at establishing the largest media giant in the country, being terminated. Last week, Zee sought an extension for the 'good faith' negotiations.

As per a report by the Economic Times, within the next forty-eight hours, a formal communication announcing the cancellation of the significant merger is anticipated to be submitted to the Tokyo exchanges.

The breakdown in negotiations was attributed to Zee Entertainment's non-compliance with conditions precedents (CP) in legal terms and the declining financial health of the company, leading to Sony's decision to discontinue the talks.

Moreover, discontent among potential acquirers had also intensified over the appointment of ZEEL MD Punit Goenka as the merged entity's CEO, pending clearance of siphoning-off allegations. The Goenka family holds 3.99 per cent equity, with the rest owned by public and institutional shareholders.

Subsequent to the merger announcement, Zee's net profit has witnessed a substantial decline, registering at Rs 48 crore in FY23, in stark contrast to the figures of Rs 956 crore in FY22 and Rs 793 crore in FY21.

Many market participants believe that the potential termination is likely to incite shareholder activism. The company is owned in part by Indian mutual funds and insurance companies, with LIC holding a 31 per cent stake.