New Delhi: According to a termination notice reviewed by Reuters, Sony cancelled the $10 billion merger of its Indian arm with Zee Entertainment in part because Zee failed to meet some financial terms of the agreement and come up with a plan to address them.
Zee denied the allegations in a letter to Sony that was also reviewed by Reuters, accusing the Japanese company of “bad faith” in cancelling the merger.
A Zee-Sony merger in India would have created a media powerhouse in the world’s most populous country, with over 90 channels covering sports, entertainment, and news.
However, Sony terminated the plans on January 22, citing “closing conditions” that were not met after two years of negotiations. Neither Sony nor Zee made the termination notice public.
Reviewed by Reuters Sony’s notice stated that Zee had “failed to take commercially reasonable” efforts to meet some financial thresholds, including cash availability, and that the Indian network’s “lack of commercial prudence” influenced its decision.
In the 62-page notice, Sony stated that several breaches of the merger agreement were “not remediable, and any further attempts to mutually discuss would be an empty formality, especially given… plain denial (by Zee) and failure to provide a proposal to protect” Sony’s interests.
“The breaches committed by Zee are not ‘procedural or technical’ in nature and will have a substantive impact on the transactions,” Sony said in a statement.
A day later, on January 23, Zee responded privately to Sony, denying all of Sony’s allegations and stating that the Japanese company’s demand for a termination fee of $90 million was “legally untenable”.
The termination was “effected in bad faith” and “is wrongful, bad in law,” Zee wrote in its letter, requesting that Sony withdraw its notice.
A Zee spokesperson declined to comment, and Sony did not respond to Reuters’ queries.
Zee’s stock has fallen by about 30% since the deal failed.
Its business has struggled over time. Zee’s advertising revenues fell to $488 million in the fiscal year 2022-23, from around $600 million five years earlier. Cash reserves decreased from $116 million to $86 million during that time period.
Sony’s termination notice stated that Zee’s cash position as of September 30 was 4.76 billion rupees ($57.26 million), which was “much below the requirements” of the merger agreement.
According to Reuters, Sony was also concerned about Zee CEO Punit Goenka, who was set to lead the merged entity and is under investigation for suspected diversion of company funds, which he has denied. Sony cited a “ongoing investigation” in its notice.
Zee was “unable to realistically assess the timeline required to resolve all outstanding issues,” according to Sony’s termination notice.