Sony May Call Off $10 Billion Merger With Zee Entertainment: Reports

Sony Group Corp is reportedly gearing up to call off the much-anticipated merger between its India unit and Zee Entertainment Enterprises Ltd, marking the end of a tumultuous two-year journey to create a formidable $10 billion media house.

Insiders privy to the matter revealed to Bloomberg that the Japanese conglomerate is contemplating the termination due to an unresolved dispute over the leadership of the merged entity. The bone of contention revolves around Zee's CEO, Punit Goenka, who is also the founder's son. Initially slated to lead the new company according to the 2021 agreement, Sony now no longer wants Goenka to lead the entity amid an ongoing regulatory probe.

Bloomberg sources suggest that Sony intends to file the termination notice just before the January 20 extended deadline for closing the deal, citing unmet conditions necessary for the merger as a justification. Despite the looming deadline, discussions are still in progress between the parties involved.

Punit Goenka, undeterred by the recent developments, has reportedly stood firm in his desire to helm the merged entity as initially agreed upon. Extended meetings in the past few weeks have failed to reach a consensus.

As of now, neither Sony nor Zee has officially responded to inquiries, leaving stakeholders and industry watchers in anticipation as they await the final verdict on the $10 billion media merger.

The collapse of the deal due to this last-minute leadership tussle not only leaves Zee vulnerable to potential defaults but also comes at a crucial time for the media landscape. Billionaire Mukesh Ambani is actively seeking to strengthen Reliance Industries Ltd's media ambitions by negotiating a merger with Walt Disney Co's India unit, further intensifying the competitive dynamics in the industry.

The proposed Sony-Zee merger aimed to create a formidable $10 billion media powerhouse, capable of challenging global streaming giants such as Netflix Inc and Amazon.com Inc, as well as local heavyweights like Reliance. Zee's request for a deadline extension on December 21 was met with Sony's insistence on hearing proposals related to the remaining critical closing conditions.

Complicating matters, the Securities and Exchange Board of India (SEBI) alleged in June that Zee had falsified loan recovery to conceal private financing deals by its founder, Subhash Chandra. An interim SEBI order accused Chandra and his son Goenka of abusing their positions and siphoning off funds, resulting in Goenka being barred from executive or director appointments in listed companies.

Although Goenka obtained a reprieve from an appellate authority against the SEBI order, Sony perceives the ongoing probe as a corporate governance issue. Under the terms of the 2021 agreement, Sony Pictures Networks India Pvt was slated to own a 50.86% stake in the merged media firm, while Goenka's family would have held a 3.99% stake. Despite having secured almost all regulatory approvals, the proposed merger would have significantly expanded Sony's presence in India, the world's most populous country.

*Inputs from Bloomberg*