Ahead of the failed merger of Sony Pictures Network and Zee Entertainment Enterprises Ltd, the two giants of the media industry clashed over more than 20 compliance issues, according to a report by Reuters news agency.
The email conversations between Sony’s legal and M&A executives in India and Los Angeles with top Zee executives provided secret details about the high-stakes backroom wrangling that scuttled the merger.
What caused $10 billion Zee-Sony merger to fail? Details here
Zee-Sony breakup: Here’s what emails reveal
Russian assets
According to a Reuters report, the conflict was over the Indian company’s failure to divest some Russian assets and its $1.4 billion Disney cricket rights deal.
Emails show that there was an agreement between Sony and Zee for four Russian subsidiaries that were involved in the creation and distribution of content, as the merger agreement stipulated no dealings with entities based in countries under US sanctions.
Sony Pictures said that Zee did not end ties with the Russian entities even though it was “absolutely critical”.
Zee counsel Venkatachalam responded by saying the divestment process had not been completed due to changing regulations in Russia and alternative structures were being explored, although the business of those units “was closed in December 2022”, emails showed.
Zee-Sony merger deal failure: Urgent arbitration to be held in Singapore
A cricket deal
Another key point of contention was Zee’s decision in 2022 to strike a $1.4 billion deal with Disney to buy certain television cricket rights for India.
Reuters citing emails said Sony said Zee had decided to provide a bank guarantee and deposit totaling $406 million for television cricket rights for India. Zee’s offer to take on debt for the deal, which was “without prior written consent” from Sony, took the Indian company’s total debt to more than $451 million – above the merger agreement threshold.
Sony scraps $10 billion merger of Indian arm as Zee fails to meet financial conditions
Zee’s legal executive said the cricket deal violated no merger terms as the two sides wanted to encourage Zee’s expansion into sports.
South Africa channel
Apart from the Disney deal, Sony has accused Zee of several other merger agreement breaches, including launching a new channel in South Africa during talks and giving a $3.3 million loan to a subsidiary in India without specifying repayment terms.
We will raise Zee’s stake to 26%; no plan to raise external funds: Subhash Chandra
Zee said none of those things violated the terms of the agreement. “We have incurred substantial costs to ensure a successful merger between our companies,” Zee’s Venkatachalam wrote in an email.
The Japanese firms pulled the plug on the $10 billion merger with ZEEL on 22 January, seeking $90 million for breach of terms in addition to initiating arbitration.
Zee-Sony: What next after the merger collapse?
A Zee-Sony combination could have mounted a bigger challenge to the likes of Disney, Reliance and foreign streaming giants Netflix and Amazon.
Sony said in a statement that certain “term conditions” to the merger had not been met despite “good faith discussions” with Zee, and the companies were unable to agree on an extension before their January 21 deadline.
“After more than two years of negotiations, we are extremely disappointed … We remain committed to growing our presence in this vibrant and fast-growing market,” it added.
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The collapse of the deal is a bigger setback for Zee, one of India’s best-known television networks that started in 1992 but has seen its business struggle over the years. Its shares have fallen 27% since the merger was called off.Em
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Published: 01 Feb 2024, 09:35 IST