Sony Group Corp. has officially communicated to Zee Entertainment Enterprises Ltd. its decision to abandon the proposed merger between its India unit and the media network, bringing an end to a two-year acquisition saga. This move leaves Zee vulnerable to competition as its rivals strengthen their positions.
The termination letter, citing unmet conditions of the merger agreement, was sent by the Japanese entertainment giant to Zee on Monday. While Sony is expected to disclose this to the exchange later, official comments from both parties are pending.
The termination follows a prolonged deadlock between the companies, primarily centered around the leadership dispute regarding Zee’s Chief Executive Officer, Punit Goenka. The investigation into Goenka’s conduct by India’s capital markets regulator added complexity to the situation. The failure to resolve this standoff appears to have scuttled the deal, which aimed to create a $10 billion media giant capable of competing with global powerhouses like Netflix Inc. and Amazon.com Inc.
Sony refrained from providing comments, and Zee’s representative did not immediately respond to requests for comment.
A January 8 report had indicated Sony’s intention to call off the merger due to the impasse over the leadership dispute. Despite subsequent statements from Zee suggesting ongoing talks to complete the merger, the termination letter from Sony has now materialized.
If Goenka is ousted from Zee, Sony could potentially reconsider another merger proposal, according to sources. Zee’s financial health has been on the decline, with a 95% drop in profit for the year ended March 31, totaling 478 million rupees ($5.8 million) compared to the previous period.
The termination letter comes after a 30-day grace period ended over the weekend, during which the two sides failed to reach an agreement on a deadline set in late December.
The leadership struggle emerged as the most significant hurdle for the deal. Zee insisted on Goenka leading the new entity as agreed in the 2021 pact, while Sony, wary of the regulatory probe against him, resisted his appointment.
In June, the Securities and Exchange Board of India accused Zee of fabricating the recovery of loans to conceal private financing deals by its founder, Subhash Chandra. The ongoing regulatory probe, perceived as a corporate governance issue by Sony, contributed to the collapse of the deal.
The abandoned merger, despite almost all regulatory approvals, would have resulted in Sony owning a 50.86% stake, with Goenka’s family holding 3.99%. Sony, now compelled to reevaluate its media plans for India, would have benefited from Zee’s extensive content library in regional languages and its array of local television channels.
Zee, grappling with financial vulnerability and investor concerns, is now set to face heightened competition as Reliance Industries Ltd. and Walt Disney Co. advance in talks to merge their India media operations.
