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Knotted up: Two-year courtship between Sony and Zee ends in acrimony and lawsuits

By Shirish Nadkarni

Divorce, even before marriage. That, in essence, is the situation between the Sony Group’s Indian unit, Sony Entertainment (India), and Zee Entertainment Enterprises, who had been on the brink of tying the knot, following a two-year courtship. The cancellation of the proposed merger has set the stage for a legal battle, sparking uncertainty about the fate of both entities.

Sony abrogated the US$10 billion merger agreement, and demanded $90 million in termination fees. In essence, Sony has sought US$90 million for alleged breaches of the merger agreement and emergency interim relief by “invoking arbitration” before the Singapore International Arbitration Centre (SIAC). Zee rejected the demand and said it plans to take legal action to protect stakeholder interests. 

The move came after a failed 30-day attempt in the initial weeks of this year to stitch together an agreement after the original deal deadline had passed. The merger scheme of Zee and Sony had received all necessary regulatory approvals since the first announcement of the deal in December 2021.

At the time of writing this report, SIAC had ruled in Zee’s favour over the company’s application to approach an Indian company law tribunal to enforce the full US$10 billion deal. Sony India expressed disappointment at the decision, but claimed it was purely a procedural ruling over whether Zee could pursue its application with the Indian tribunal.

“We will continue to vigorously arbitrate the matter in Singapore in front of a full SIAC tribunal and pursue our right to terminate the merger agreement and seek a termination fee and other remedies,” Reuters quoted Sony India as saying.

At the heart of the matter is the battle between the two media giants over who would head the merged entity. While Sony India has insisted that it should by rights be its long-serving chief, Narender Pal Singh (known in the industry as N P Singh), Zee has been rooting for Punit Goenka, elder son of the Zee Group’s founder and Chairman Emeritus, Subhash Chandra.

Chandra attempted to tar Sony’s motives by claiming that Punit Goenka and the family had collectively decided that he should step aside, and the merger should proceed because it was beneficial for Zee. 

“This decision was communicated to Sony, but it wasn’t acceptable to Sony,” Chandra told APB+. “I believe this was Sony’s strategy all along: To engage with Zee and eventually withdraw, portraying Zee as vulnerable.

“I intend to convey this perspective to the Zee board as well.”

Sudip Mahapatra, a partner at legal firm S&R Associates, noted that Sony did not specify the unfulfilled conditions in its statement: “The statement from Sony states that it is terminating the agreement as conditions precedent to the closing were not completed in time. It does not specify the exact conditions that could not be fulfilled. 

“If the matter goes into litigation, Sony will need to establish the fact that certain conditions were not completed in time, which triggered its termination right.”

He added, “On an interesting note, there was an obligation on the parties to negotiate in good faith to extend the deadline of the merger. Zee’s statement seems to suggest Sony did not constructively participate in such good-faith negotiations. It remains to be seen whether Zee will raise this as an issue in any future litigation.” 

How does the cancellation of the merger affect the two entities?

While Sony is left with a small market share in India (it currently has a 7%-8% market share, compared to Zee’s 18%) and a prolonged legal tussle, Zee may get embroiled in a battle for its survival after its white knight walks out.

For Zee, the stakes appear dire. The company is prone to a hostile takeover, since the promoters own just 3.99% of the equity (considered grossly insufficient in India to control the business); and institutional investors could well join hands to oust Punit Goenka.

Zee will need to scout for other cash-infusion options, and may also face a legal battle to retain the International Cricket Council’s (ICC) broadcast rights.

While Zee still has a strong presence in the linear entertainment space, it needs to make heavy investments in sports and over-the-top (OTT) to survive.

On the other hand, Sony India is faced with a further drop in market share, and could be marginalised if the proposed merger between Disney and Viacom18 of Mukesh Ambani’s Reliance Group goes ahead. The company’s flagship Hindi general entertainment channel has been losing both viewership and market share. It has virtually no regional presence in South India, and is considered an urban-centric broadcaster.

However, Sony India chief N P Singh appears enthusiastic about his company’s prospects in India, post the abrogation of the merger deal with Zee.

Singh told APB+, “For content to be successful, inspirational or aspirational, it needs to connect with the audience. We put in a lot of time and effort in understanding the pulse of our viewers which has helped us create captivating shows and characters, all geared towards engaging and entertaining our viewers. 

“The brand essence of Sony Entertainment Television (SET) is progressive relationships. We believe that when partnerships become relationships, society achieves progress and happiness. This is something that we try for and to project through our content palette.”

Singh insisted that Sony India’s growth drivers were general entertainment, digital and sports. “In all three areas, we have made significant investments and are seeing positive returns,” he said. “We will continue to support these, going forward.

“We are delighted to see our efforts translating into success where both our brands are concerned. SET is No.1 and Sony SAB is at No.3 with SPN having a 36% market share in Hindi speaking markets (HSM). It is indeed a great place to be in, and we hope to only get better and better.

“Over a period, SET has been able to stay relevant to the audiences by evolving with their consumption patterns and offering a differentiated content palette making it a one-stop family entertainment destination amongst metros and large towns.

“Furthermore, catering to the millennial audience, SET has revolutionised the way content is consumed by introducing the second screen engagement.”

Singh declared that the sports cluster of Sony Pictures Networks India was a global multi-sporting arena and besides cricket, its sports bouquet also consisted of football, World Wrestling Entertainment (WWE), Ultimate Fighting Championship (UFC) and NBA, to name a few.

“In addition, we have the rights to eight cricket boards, and the best of international football with rights to broadcast over 700 football matches this season,” he said.

“We are taking rapid strides in our endeavour and commitment to bring the best of multi-sporting events to our Indian viewers, we have acquired the broadcast rights for the upcoming Olympic Games in Paris. 

“For us, there is certainly life beyond Zee!”

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