Should Reliance Celebrate Failure Of Zee-Sony Merger?

Zee-Sony Merger Fails: In business, we have often seen that a loss of one party can be a big profit for another party and this is perfectly true when it comes to the sad fate of the highly talked about Zee-Sony Merger. Now, since the merger deal between the two media giants has been called off, there are anticipations that this unfulfilled merger can be a big profit for Reliance Industries.

Thus, at a time when Zee is shocked by the sudden termination of the deal by Sony, Reliance Industries Chairman Mukesh Ambani could be cheering this development. Before we discuss in detail how this collapse of Zee-Sony merger failure will benefit India's largest company in terms of mark cap, let us see why this deal failed and how its failure is impacting Zee's share price performance.

Zee shares touched a lower circuit at Rs. 208.60 in the intraday trading on Tuesday. The share price of Zee Entertainment Enterprises Ltd (ZEEL) nosedived 20% at Rs 185.40 per share at 11:36 am IST today. The sharp selloff in Zee shares was seen a day after the company's $10 billion media merger deal with Sony's India unit was scrapped on Monday. The termination of a $10 billion merger deal with Sony India, raises concerns over the future of financially strained Zee in an intensifying and competitive industry landscape.

The deal was announced two years ago, in a bid to create the country's largest broadcast company. The proposed merger intended to create a 74-channel media behemoth, providing the Japanese group with a sizable market share in the media landscape in India.

It is noteworthy to mention that Sony and Zee initially failed to build consensus regarding Zee's Managing Director and Chief Executive Officer, Punit Goenka, leading the merged entities. Sony Group has been advocating for NP Singh, its India MD and CEO, to serve as the chief executive of the new entity in the interim unless Goenka is exonerated in all pending cases.

Why Zee-Sony Deal Collapsed?

While media reports one of the reasons behind the failure was that Sony and Zee failed to build consensus regarding Zee's Managing Director and Chief Executive Officer, Punit Goenka, leading the merged entities. Sony Group has been advocating for NP Singh, its India MD and CEO, to serve as the chief executive of the new entity in the interim unless Goenka is exonerated in all pending cases.

However, ZEE has refuted these claims. Brokerage house Nuvama Institutional Equities sees new developments in industry dynamics like a possible deal between Reliance's Viacom and Disney Star. Some reports also claim that Zee violated the agreement on certain aspects like the media company having subsidiaries in Russia and launching a new channel in Africa, which were seen to breach the agreement between the two parties. Prior to the announcement of the merger, ZEE had two subsidiaries in Russia. Since Sony is an American entity, it cannot do business with firms having connections with Moscow. ZEE also launched a channel in Africa, which was in contravention of the agreement.

Changes In Industry Dynamics

Reliance's Viacom and Disney + Hotstar deal is likely to get wrapped up soon (with Mukesh Ambani's Reliance holding 51%). Both entities combine together own major cricket broadcasting rights such as IPL, ICC, and other Indian bilateral cricket series. According to Nuvama, for ZEE to be a serious player in sports and to expand its OTT, it would have needed a financial partner.

Distressed profitability:

Since the announcement of the merger, ZEE has seen a decline in profit figures due to weak industry dynamics. For example, on an absolute basis, Zee's EBITDA declined 38% and PAT was down 48% over FY21-23. This also made the deal a bit unattractive.

How the merger deal failure will benefit Reliance?

Mukesh Ambani is reportedly in talks with Walt Disney Co. CEO Bob Iger, who wants to steady the sprawling behemoth by focusing on four key areas: streaming, theme parks, studios, and ESPN, the sports network. If Ambani's Viacom18 Media joins forces with Disney's Star franchise, the owner of India's largest telco and its biggest retailer will control a third of Hindi general entertainment in northern cities.

Industry insiders believe that Reliance-Disney, the other merger on the table, if succeeds will create a merged entity that could have a monopolistic approach after the failure of the Zee-Sony merger. With the collapse of Sony-Zee Merger, the share of the TV advertising market for Reliance and Disney as a merged entity is expected to increase from 25% to 43%

Besides, the failure of the merger between Zee and Sony will be positive news for Reliance, especially on the digital side as Jio Cinema is the market leader currently after acquiring IPL rights in terms of ad revenue scale.

Nonetheless, it is also believed that the termination of the Zee-Sony deal has left giant advertisers like Unilever and Procter & Gamble with limited options. It is likely that now they will have to turn to a potential rival which could be Reliance if the Reliance-Disney merger happens, to reach India's nearly 1.4 billion population.