'Sign From The Lord': Zee CEO Punit Goenka Posts From Ayodhya After Sony Terminates Deal

Punit Goenka, the managing director and chief executive of Zee Entertainment Enterprises Ltd (ZEEL), who is counted among the distinguished guests invited to the Ram Mandir Pran Prathistha ceremony, hinted at the company’s latest development in a post on X, referring to them as “a divine sign.”

This comes after Sony Group Corp on Monday said it is calling off a USD 10 billion merger of its India unit with Zee Entertainment, following a stalemate over who will lead the merged entity.

Goenka posted, “As I arrived at Ayodhya early this morning for the auspicious occasion of Pran Pratishtha, I received a message that the deal that I have spent 2 years envisioning and working towards had fallen through, despite my best and most honest efforts.”

“I believe this to be a sign from the Lord. I resolve to move ahead positively and work towards strengthening Bharat’s pioneering M&E Company, for all its stakeholders.”

Also Read: Sony-Zee Merger Cancellation: Know Full Timeline Of Acquisition Saga

Zee Sony Merger Deal

Sony sent a termination notice to Zee on the deal, which was announced more than two years back, and is seeking USD 90 million as break-up fees for violating the terms of the merger pact and “invoking arbitration”.

In a stock exchange filing on the issue, Zee on its part denied all claims made by Sony and said it is exploring legal remedies. “Zee has displayed utmost commitment towards the merger by undertaking several permanent and irreversible steps, resulting in one time and recurring costs for Zee,” it said.

A standoff over leadership is said to be the reason for the deal being called off. Sony had resisted demand by Zee chief executive Punit Goenka, who was investigated by market regulator SEBI over fraud allegations, to stay on after the merger.

The deal was seen as crucial for both companies for survival in the world’s fastest-growing large economy.

The deal would have created an entertainment conglomerate with more than 70 Indian TV channels, popular Bollywood studios and an extensive film library to take on global powerhouses Netflix and Amazon.

“Sony Pictures Networks India Pvt Ltd (now known as Culver Max Entertainment Limited), a wholly-owned subsidiary of Sony Group Corporation, today issued a notice terminating the definitive agreements entered into by SPNI and Zee Entertainment Enterprises Ltd. relating to the merger of ZEEL with and into SPNI, which was previously announced on December 22, 2021,” the Japanese firm said in a statement.

The definitive agreements provided for the merger to close within 24 months. On expiry of such a period, the deadline was extended by a month.

“The merger did not close by the end date as, among other things, the closing conditions to the merger were not satisfied by then, ” the filing said.

Sony said it was “extremely disappointed that the conditions to the merger were not satisfied” by the deadline, which had been set as January 21. The company added that it “remained committed to growing our presence” in India.

In a stock exchange filing, Zee said it had also received a demand from Sony for a USD 90 million termination fee over “alleged breaches” of the terms of the deal.

“The company categorically denies all claims and assertions” by Sony and is evaluating all options, Zee said in the filing adding it “will take all the necessary steps to protect the long-term interests of all its stakeholders, including by taking appropriate legal action”.

Zee said it had taken “all efforts and steps” in line with the merger agreement and had consistently worked towards implementation of the deal.

The Indian firm had seen a decline in financial performance with profits declining due to rising streaming costs and falling advertising revenue. Zee’s four-year agreement with Disney’s Star for TV broadcasting rights for certain cricket events may be at risk after the deal collapses as it has to pay USD 1.32-1.44 billion over the tenure of the pact.

Sony-Zee deal, which won approval from regulators in August, would have created a USD 10 billion entertainment behemoth in which Sony was supposed to own a 50.86 per cent stake, with Goenka’s family owning 3.99 per cent.

The collapse of the deal will now send Zee to redraw its strategy to compete against such a giant as the possible merger of media operations of Reliance Industries Ltd and Walt Disney Co.

Sony too will have to relook at its India strategy as it no longer will benefit from Zee’s deep library of content in regional languages and its bouquet of dozens of television channels.

The merger, which would have created a USD 10-billion entity had already received regulatory approvals from NCLT, fair trade regulator CCI, bourses NSE and BSE, shareholders and creditors of the company.

However, an interim order by Sebi barring Essel Group chairman Subhash Chandra and Goenka from holding the position of a director in any listed company after market regulator found them diverting funds from the company, changed the game.

Though the Sebi order was stayed by the Securities Appellate Tribunal, Sony is not comfortable with Goenka leading the merged entity during the probe due to the stringent corporate governance policy in Japan.

The combined entity would have owned over 70 TV channels, two video streaming services (ZEE5 and Sony LIV) and two film studios (Zee Studios and Sony Pictures Films India), making it the largest entertainment network in India.

Sony had plans to invest USD 1.575 billion in the merged entity and have majority stake. Chandra family was also free to increase its shareholding from the current about 4 per cent to up to 20 per cent.

(With PTI inputs)