More than two years after announcing a merger proposal, Japanese entertainment giant Sony Corporation said its Indian arm, Culver Max Entertainment Pvt. Ltd (formerly Sony Pictures Networks India Pvt Ltd (SPNI), has called off the $ 10 billion merger plan with Zee Entertainment Enterprises Ltd (ZEEL) that could have combined their linear networks, digital assets, production operations and programme libraries to create a mega entertainment firm. Why did Sony terminate the agreement with Zee? While the expected completion of the deal was December 21, 2023, Zee had sought a deadline extension, which was to expire on January 20. This 30-day grace period was included in the merger pact signed in December 2021. However, the deal couldn’t be fructified by January 20, 2024 and Sony cited the delay in the merger for the termination. “Although we engaged in good faith discussions to extend the end date under the merger cooperation agreement, we were unable to agree upon an extension by the January 21 deadline. After more than two years of negotiations, we are extremely disappointed that closing conditions to the merger were not satisfied by the end date,” Sony said. The definitive agreements further provided that if the parties are unable to agree upon such an extension by the end of the discussion period, any party could terminate the definitive agreements by providing written notice, it said. What’s the real reason behind the Sony move? There was apparently a dispute about the leadership of the combined entity by Zee’s MD & CEO Punit Goenka. In June 2023, market regulator Sebi issued an interim order which restrained Zee group patriarch Subhash Chandra and Punit Goenka from holding any key positions in any listed company but Goenka got a reprieve from the Securities Appellate Tribunal (SAT), which overturned a ban on him by the Sebi to hold directorships in Zee group even as a regulatory probe over allegations of fund diversion still remained. Sony has been uncomfortable with this regulatory overhang in view of its corporate governance policies, market sources said. It was pushing the name of its India MD & CEO NP Singh for the top job, which Goenka opposed. What was the original merger plan? The merger plan of ZEEL into SPNI, which would have possibly created the biggest entertainment entity in India, was finalised on December 22, 2021. As part of the scheme, both entities would combine their linear networks, digital assets, production operations and program libraries. The agreement said SPNI would have a cash balance of $1.5 billion at closing, including through infusion by the current shareholders of SPNI and the promoters (founders) of ZEEL, to enable the combined company to drive sharper content creation across platforms, strengthen its footprint in the rapidly evolving digital ecosystem, bid for media rights in the fast-growing sports landscape and pursue other growth opportunities. Under the transactions, Sony would have paid a non-compete fee to the founders of ZEEL, which would have been used by such promoters (founders) to infuse primary equity capital into SPNI. After the closing of the deal, Sony would have indirectly held a majority 50.86 per cent of the combined company, the promoters (founders) of ZEEL would have owned 3.99 per cent, and the other ZEEL shareholders would have held a 45.15 per cent stake. What’s the Sebi case against Punit Goenka? Last year, the Securities and Exchange Board of India had barred Goenka along with Essel Group’s Chairman Subash Chandra from holding directorial or key management personnel positions in ZEEL and its group companies. The action was taken after the regulator found that both had allegedly diverted funds from Essel Group companies for their own benefit. SEBI started investigating the matter related to the appropriation of certain fixed deposits (FD) of ZEEL by Yes Bank for squaring off loans of related entities of Essel Group. The regulator found that Chandra had provided a Letter of Comfort (LoC) in September 2018, towards credit facilities amounting to Rs 200 crore availed by certain group companies from Yes Bank. The LoC was issued without the knowledge of the board of ZEEL, which was a violation of SEBI’s Listing Obligations and Disclosure Requirements (LODR) norms. The regulator also barred Chandra and Goenka from holding any key managerial personnel position in any resultant company that would be formed by a way of a merger or amalgamation, and demerger of Zee Group companies. Goenka had later challenged the Sebi’s order. However, in October last year, the Securities Appellate Tribunal (SAT) had set aside Sebi’s order against Punit Goenka, which barred him from holding key management personnel positions in any listed entity. This paved the way for Goenka to become the managing director of the company formed due to the merger of ZEEL and Culver Max Entertainment. What are the options before ZEEL now? In a filing to exchanges, ZEEL has refuted all the claims made by Culver Max regarding alleged breaches of the merger co-operation agreement (MCA). The company said it is evaluating all available options and will take all necessary steps to safeguard the long-term interests of its stakeholders. ZEEL said it received communications dated January 22 from Culver Max and Bangla Entertainment Pvt Ltd (BEPL) “purporting to terminate the merger co-operation agreement and seeking termination fee of US $ 90 million on account of alleged breaches by ZEEL of the terms of the MCA, and invoking arbitration against the company and seeking emergency interim reliefs against the company”. Refuting assertions from Culver Max and BEPL on the breaches, including their claims for the termination fee, it said it reserves all rights in this matter. “The company is evaluating all available options and basis the guidance received from the board and will take all necessary steps to safeguard the long-term interests of its stakeholders, including by taking appropriate legal action and contesting Culver Max and BEPL’s claims in the arbitration proceedings,” ZEEL said.
