Sony-Zee merger risks collapse ahead of deadline over CEO drama

Sony-Zee merger risks collapse ahead of deadline over CEO drama

Zee is insisting that its Chief Executive Officer Punit Goenka — also its founder’s son — will helm the new entity, as agreed in the pact signed in 2021, while Sony is wary of his appointment given a regulatory probe against Goenka, the people added.

Sony-Zee merger risks collapse ahead of deadline over CEO drama

The fate of the planned merger between Sony Group Corp.’s India unit and Zee Entertainment Enterprises Ltd. may be decided as early as next week, according to sources familiar with the matter. The companies are facing a looming deadline to resolve their standoff or risk abandoning the long-awaited deal to create a $10 billion media giant.

If the two sides cannot agree on who will lead the merged entity and finalize the merger details, Sony is likely to send a letter to Zee next week stating that the stipulated demands for the merger cannot be met. This could effectively lead to the termination of the deal, as there may not be sufficient time to address all outstanding issues by the formal December 21 deadline.

Zee is insisting that its Chief Executive Officer, Punit Goenka, who is also the founder’s son, will lead the new entity, as agreed in the 2021 pact. However, Sony is reportedly cautious about Goenka’s appointment due to an ongoing regulatory probe against him. This disagreement over leadership has created a last-minute challenge in the two-year-old merger plan, which has already experienced drama and delays.

A representative from Zee, without commenting on the leadership issue, stated that the company was actively working towards timely completion of all prerequisites for the deal. The representative mentioned that Zee had already completed most of the requirements and was in regular communication with Sony. Sony’s representatives did not respond to a request for comment.

In June, the Securities and Exchange Board of India (SEBI), the market regulator, alleged that the Mumbai-based media house (Zee) faked the recovery of loans to cover private financing deals by its founder, Subhash Chandra. SEBI claimed that Chandra and his son, Goenka, “abused their position” and siphoned off funds, as stated in an interim order. The regulatory probe against Goenka adds another layer of complexity to the merger negotiations.

In the proposed merger between Sony Group Corp.’s India unit and Zee Entertainment Enterprises Ltd., if the deal goes through, Sony is set to own a 50.86% stake in the merged entity, and the Goenka family will hold a 3.99% stake. The remaining stake will be owned by public shareholders, according to the 2021 agreement.

The merger is significant in the highly competitive media and entertainment industry, where global powerhouses like Netflix Inc. and Amazon.com Inc. operate alongside local conglomerates such as Reliance Industries Ltd.

It’s notable that Sony is not considering an extension of the December 21 deadline for finalizing the merger. This deadline adds urgency to the negotiations between Sony and Zee as they seek to resolve the leadership dispute and other outstanding issues to successfully complete the deal within the stipulated timeframe. The merger’s completion would create a substantial media entity with Sony’s majority ownership.

While the proposed merger between Sony Group Corp.’s India unit and Zee Entertainment Enterprises Ltd. faces challenges, it has already received almost all regulatory approvals. The deal can still be successfully closed if the two sides promptly resolve their outstanding issues. Additionally, they have the option to request an extension of the merger deadline from India’s company court.

If the merger is completed, it is expected to contribute to the expansion of Sony’s media business in India, the world’s most populous country. Zee Entertainment currently boasts over 75 television channels and holds a market share of 37%, surpassing Disney-owned Star’s 24%, as reported by Motilal Oswal Financial Services Ltd.

The media and entertainment sector is experiencing increased consolidation, with Reliance, a major player in the industry, reportedly in advanced talks to acquire Walt Disney Co.’s India operations. This signals a broader trend of strategic moves and realignments within the sector as companies seek to strengthen their market positions and offerings in the dynamic Indian media landscape.

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