Did SONY sideline the ZEEL board?
Those in the know of the merger deal say Sony did not give any formal or even informal proposal to the "board of ZEEL" before announcing a termination on January 22. The merger deal was approved by the National Company Law Tribunal (NCLT), shareholders and regulators. The contours of the deal mandated that both the parties meet a conditions precedent (CPs) to close the deal. But SONY did not inform the ZEEL board of the CPs that were or could not be fulfilled before terminating the deal. The issue regarding Sony's disapproval of ZEEL promoter and CEO Punit Goenka's board membership was never brought to the ZEEL board by SONY, the sources said. Instead, SONY officials had opened a separate track of negotiations with Punit Goenka.
People close to the deal also said that Punit Goenka had offered to step down from the board of the merged entity on the condition that the CEO who would replaced him be a neutral person. Goenka had told SONY to consider a headhunter to appoint a new CEO. Goenka's another condition was that SONY give him an access to the replies and the documents that the merged entity was submitting to market regulator SEBI in the ongoing investigations against him and the company. The sources say that it was a reasonable demand, since the potential replies that the merged entity was to give to the regulator, were related to Goenka's tenure and it was only legally logical that he had a purview over the same. Also, for the sake of continuity Goenka wanted a few senior employees of the company to remain in their jobs post the merger. But SONY did not consider it. Sony's direct termination letter to the ZEEL board without any prior discussion on the CPs came as a surprise, the sources say. All these points will now be raised by ZEEL in the court, where it is contesting the termination of the deal that had all the approvals in place.
$10 billion deal termination: A blessing in disguise for the rivals?
The termination of the ZEEL-SONY merger may have come as a blessing in disguise for the rivals. Last year, ZEEL had signed a strategic license agreement with Disney for buying International Cricket Council TV broadcast rights for 2024-27, for which it had to pay around $1.4 billion. With the merger deal falling apart, ZEEL has had to walk back on the promise to pay the $1.4 billion for the rights and now the same are likely to be picked up by ZEEL's rival. Disney is open to sell the same rights to Jio, with whom its is engaged in a merger deal.
ZEEL-Sony merger deal was to create one of India's largest media entertainment company. Like the corporate war and competition in the telecom industry in India, where only three players exist, the ZEEL-SONY merged entity would have pitted itself against Viacom18 (which merged Jio Cinemas into itself)+Disney+Hotstar, the merger of which also aims to create India's largest entertainment business.
With ZEEL-Sony merger deal falling apart and ZEEL having fallen by the way aside, the entity Viacom-Disney-Hotstar will find fundraising very easy as investors will see there is no rival at that scale to challenge it. Disney and Reliance Industries have reportedly entered into a non-binding agreement to merge their Indian broadcast operations. News reports say, Reliance would own 51 per cent of the combined entity, with Disney controlling the remaining 49 per cent. Both are reportedly working on a plan to invest up to US$1.5 billion in the new business and further $10 billion to $15 billion worth of fundraising is anticipated.
Did the Japanese company board chicken out ahead of the deal deadline?
With a few large Japanese giants having bad experience in the past with regard to merger and acquisition deals in India, entertainment giant SONY's board may have 'chickened out' or got frightened of the rigorous moves by market regulator SEBI to dig deeper into ZEEL and its promoters. Reportedly, just a couple of days ahead of the deadline of the ZEEL-SONY merger deal this month, SEBI sent out fresh notices to ZEEL promoters with regard to investigations into other funds siphoning matters. Last year when SEBI had accused ZEEL promoters of funds siphoning, its order was set aside by the Securities and Applet Tribunal (SAT) in December 2023. Currently, the SAT is running without a presiding officer, who can hear appeals and decide on the cases. Any action or order by Sebi may take a long time to come on board in SAT. There is a feeling among the board members of SONY that their merger was jinxed from the beginning when they started the process two years. Despite all the legal approvals being in place, their patience ran out this time and hence the termination letter.