Sony Scrapped $10-Billion Merger Deal As Zee Failed To Meet Financial Terms: Report
Sony-Zee merger: Zee denied the allegations in a letter to Sony and accused the Japanese firm of ‘bad faith’ in calling off the merger
Sony scrapped the $10-billion merger of its Indian arm with Zee Entertainment because Zee failed to meet some financial terms of the deal and come up with a plan to address them, news agency Reuters said. As per the termination notice reviewed by the news agency, Zee denied the allegations in a letter to Sony and accused the Japanese firm 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. However, Sony terminated the deal on January 22, saying it was doing so because ‘closing conditions’ were not satisfied after two years of negotiations.
According to Reuters report, 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 termination 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 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 January 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 nearly 30 per cent 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 Rs 4.76 billion ($57.26 million) as of September 30, adding that was "much below the requirements" of the merger agreement.
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