Sony scrapped $10bn India merger as Zee failed to meet financial terms

Zee Entertainment and SONY logos are displayed in this illustration taken, September 1, 2022. REUTERS

Sony scrapped the $10 billion merger of its Indian arm with Zee Entertainment, opens new tab in part because Zee failed to meet some financial terms of the deal and come up with a plan to address them, according to a termination notice reviewed by Reuters.

India's Zee denied the allegations in a letter to Sony, opens new tab, also reviewed by Reuters, and accused the Japanese company of "bad faith" in calling off the merger.

A Zee-Sony merger in India would have created a media powerhouse in the world's most populous nation with 90-plus channels across sports, entertainment and news.

But Sony terminated the plans on Jan 22, saying in a statement it was doing so because "closing conditions" were not satisfied after two years of negotiations. Neither Sony nor Zee made the contents of the termination notice public.

Reviewed by Reuters, Sony's notice said Zee had "failed to take commercially reasonable" efforts to meet some financial thresholds, including with regards to cash availability, while a "lack of commercial prudence" by the Indian network contributed to its decision.

In the 62-page notice, Sony said 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.

Zee responded privately to Sony a day later, on Jan 23, saying it denied all Sony's allegations, adding 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, which asked Sony to withdraw its notice.

A Zee spokesperson declined to comment, while Sony did not respond to Reuters queries.

Zee's shares have fallen about 30% since the deal collapsed.

Its business has struggled over the years. Zee's advertising revenues fell to $488 million for the 2022-23 financial year from around $600 million five years earlier. Cash reserves dropped to $86 million from $116 million in that period.

Sony, in its termination notice, said that Zee's cash position was 4.76 billion rupees ($57.26 million) as of Sept. 30, adding that was "much below the requirements" of the merger agreement.

Reuters reported last week that Sony was also concerned about Zee CEO Punit Goenka - who was set to head the merged entity - facing a regulatory investigation for suspected diversion of company funds - allegations he has denied. The "ongoing investigation" was cited in Sony's notice.

Zee was "unable to realistically assess the timeline required to resolve all the outstanding issues," Sony's termination notice stated.