sony zee merger: Zee-Sony deal breakers: Unmet deadlines, bitter emails and dissent over who’s boss

Months of drama and bitter email exchanges preceded the Sony Group’s decision to call off its merger deal with Zee Entertainment Enterprises, with both sides accusing each other of not meeting the conditions required to complete the transaction, show documents accessed by ET.
While the deal collapsed primarily due to a disagreement over who would be the managing director and chief executive of the joint entity, other factors also played a role, suggest the communication between the companies. In its deal termination notice, Sony-owned Culver Max Entertainment claimed multiple breaches by Zee, some of which “uncurable”, of the December 22, 2021 merger cooperation agreement (MCA).

Sony rejected Zee’s proposal for a six-month extension to the deal closure deadline after the end of one month of good faith negotiations on January 21. For this, it cited Zee’s inability to provide a clear timeline to complete outstanding issues that were a must to conclude the merger, as per the email exchanges seen by ET.

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Sports-related exceptions: Zee
The MCA breaches, according to Sony, included a decline in Zee’s operating profit below the agreed ₹1,555 crore, non-disclosure of certain pending investigations, signing of a deal with Disney Star for International Cricket Council TV rights without Sony’s consent, and venturing into a new business by launching a TV channel in South Africa. Sony claimed that Zee’s ₹3,370 crore commitment in bank guarantees and deposits to Disney Star for the ICC TV rights, along with its existing debt of ₹3,007.5 crore, had resulted in its binding debt exceeding ₹3,750 crore, which was a violation of the MCA, as per the documents. In response, Zee termed Sony’s conduct in raising the ICC issue “belatedly” as reprehensible and unfortunate, stating that the MCA had sports-related exceptions. It deemed Sony’s request for provisioning losses on ICC TV rights as against industry accounting norms. The Punit Goenka-led company said Sony was aware that Zee would not be able to meet the ₹1,555 crore Ebitda criteria and questioned its motives for raising the issue at a late stage of the deal. It defended the Zee Zonke launch in South Africa, terming it a normal product launched in the ordinary course of the business.

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