Media and entertainment giant Zee Entertainment Enterprise Ltd (ZEEL) and Sony Pictures Networks India came into the limelight after the Board of Directors of Zee Entertainment gave in-principle approval for the merger of its business with Sony on 21 September 2021. However, after over 2 years of talks between both parties, the Japanese conglomerate Sony Pictures, on 22 January 2023, announced the termination of the agreement. In this article, we will gain insight into the events that have transpired over the duration.

Merger Agreement details

On 21 September 2021, the board of directors of ZEEL gave an in-principle agreement for the merger with Sony Pictures Networks India (SPNI). After completing the 90-day due diligence period, the board approved the merger of ZEEL and Bangla Entertainment Private Limited (BEPL), an affiliate of Culver Max Entertainment (formerly known as Sony Pictures Networks India), in Culver Max Entertainment.

The merger was said to create the largest media conglomerate in the country, which would have a commanding market share of over 28%. The merger was supposed to bring 75 channels, two film studios (Zee Studios and Sony Picture Film India), and two video streaming services (Zee5 and Sony LIV) under one single umbrella. After the merger, Sony would hold a majority stake of 50.86% in the new entity, whereas the founders of ZEEL will hold 3.99%, while other ZEEL shareholders will hold a 45.15% stake in the company. Through this article, let us delve deep into what has transpired in the last two years. 

Hurdles faced

India’s largest entertainment merger faced a fair share of disruptions, including insolvency proceedings and the money laundering charges faced by Subhash Chandra and Punit Goenka.

Insolvency Charges

On 4 February 2022, IndusInd Bank, a private sector lender, filed a plea before the National Company Law Tribunal (NCLT) to initiate insolvency proceedings against ZEEL after the company defaulted on a payment of Rs 83.08 crore. However, on 21 February 2022, Zee Limited filed an application before the NCLT requesting the dismissal of the plea. 

In December 2022, IDBI Bank moved to the NCLT against ZEEL for seeking insolvency proceedings against the media firm to recover dues of Rs 149.60 crore. 

On 22 February 2023, the NCLT approved the insolvency proceedings against ZEEL in response to the petition filed by IndusInd Bank claiming a payment default of Rs 83.08 crore against Subhash Chandra. In May 2023, NCLT also directed the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) to reconsider their initial approvals for the merger. 

On 3 December 2023, IDBI Trusteeship filed an appeal at the NCLAT against Essel Group chairperson Subhash Chandra, contesting NCLT’s approval for the merger. 

On 15 December 2023, the NCLAT issued notices to ZEEL over the petitions Axis Finance and IDBI Bank filed against the NCLT order for the merger. However, it declined to grant any stay over the merger process during the pendency of the hearing.

Money Laundering Charge

On 12 June 2023, the Securities and Exchange Board of India (SEBI) put up an official ban against Punit Goenka and Subhash Chandra from holding any managerial or directorial positions in ZEEL after they had identified that the father and son duo were syphoning off funds from the company for their benefit. On 10 August 2023, the NCLT gave its nod for the entertainment merger and dismissed all objections from creditors such as JC Flower Asset Reconstruction Co, Axis Finance, Imax Corp, IDBI Bank, and IDBI Trusteeship.

On 14 August 2023, SEBI issued a confirmatory order on the case barring Subhash Chandra and Punit Goenka from key managerial and executive positions at ZEEL. The market regulator said it will complete its investigation on the matter of misappropriation in eight months, while Chandra and Goenka cannot hold managerial and directorial positions in Zee Entertainment and three other group companies.

On 26 August 2023, Punit Goenka moved towards the Securities Appellate Tribunal challenging SEBI’s confirmatory order, appealing to the tribunal to put a stay on the effect and operation of the SEBI’s order.

In September 2023, Axis Finance and IDBI Bank challenged NCLT’s 10 August approval for the merger in the NCLT. However, the asset reconstruction arm of Yes Bank, JC Flowers Asset Reconstruction Company, worked out a one-time settlement (OTS) against an outstanding debt of Rs 6,500 crore. Chandra will pay JC Flowers Rs 1,500 crore to regain ownership of the family’s stake in assets, including Dish TV and Zee Learn, as well as three properties.

On 30 October 2023, the Securities Appellate Tribunal (SAT) quashed SEBI’s order restraining Punit Goenka from holding the post of MD and CEO of the company. During the ongoing investigation of SEBI, if something material is discovered, appropriate procedures can be adopted per the law. 

Merger Leadership Hurdles

The merger also faced discrepancies between both companies as to who would lead the merged entities post-commissioning. In November 2023, the Japanese conglomerate sought that NP Singh, MD and CEO of Sony India, would lead the combined entity instead of the previously agreed-upon Punit Goenka after he remained under the scanner. 

Termination 

Facing issues from the NCLT and SEBI, the Japanese conglomerate decided to pull the plug on the merger. On 8 January 2024, the news hit that the Japanese conglomerate Sony was looking to cancel the merger due to a standoff over whether Zee’s CEO Punit Goenka, son of the founder, would lead the merged entity. However, Sony does not want him as a CEO amid a regulatory probe. Meanwhile, on 9 January 2024, Zee announced that they are committed to the merger with Sony and are continuing to work towards successfully closing the proposed merger.

On 21 January 2024, institutional investors of ZEEL, Life Insurance Corp. of India (LIC), who own more than 23.5%, wrote to the markets regulator about the current stalemate in the merger hurting the minority shareholders. 

On 22 January 2024, the Japanese conglomerate terminated the $10 billion merger deal to merge ZEEL and Culver Max Entertainment Private Limited (CME), which was formerly known as Sony Pictures Networks India Private Limited and also slapped Zee with a $90 million termination fee. The Japanese conglomerate, in a statement, said that although the company was engaged in good faith discussions for extending the end date under the merger cooperation agreement, they were unable to agree upon extension to agree upon an extension by the 21 January deadline. However, after more than two years of negotiations, the company is very disappointed that the closing conditions of the merger were not satisfied by the end date. 

Consequences

After the ZEEL and Sony merger was called off, the decision created a series of major consequences that included Zee looking towards taking legal action towards the Japanese conglomerate. On 22 January 2023, Zee Entertainment Enterprise Limited said that they would take legal action against Sony over the termination of the $10 billion merger. The company, in its statement, said they are evaluating all its available options based on the guidance it received from the board and will take all the steps to safeguard the long-term interests of its stakeholders, including taking appropriate legal actions and contesting Culver Max and BEPL’s claims in the arbitration proceedings.

Conclusion

This is just the latest in a two-year-long saga that has seen a fair share of hurdles. The merger was aimed towards creating a formidable media entity that is capable of competing with global giants like Amazon and Netflix, along with heavyweights like Reliance, who have struck a deal for a merger with Disney. The merger would have created a strong entity that would have revolutionised India’s entertainment sector.