Sony-Zee merger at risk owing to conflict over CEO role

The outcome of the much-anticipated Zee-Sony merger is set to be disclosed in the upcoming week, Bloomberg reported.

Faced with an impending deadline, both companies are under pressure to either resolve their differences and move forward with the deal or face the possibility of it collapsing.

If an agreement on the leadership of the merged entity and the finalisation of merger details cannot be reached between the two parties, then Sony is poised to dispatch a letter to Zee next week, asserting that the specified merger requirements have not been fulfilled, as per the report.

This potential development could be detrimental to the deal's prospects, as there may not be adequate time to address all outstanding matters before the official deadline of December 21, the report stated.

The merger of Zee and Sony, which was revealed in December 2021, is poised to form a media giant valued at $10 billion.

Zee asserts that Punit Goenka, its Chief Executive Officer (CEO) and the son of the company's founder, will lead the new entity as stipulated in the 2021 agreement. However, Sony is cautious about this appointment due to an ongoing regulatory investigation against Goenka. This disagreement has sparked a last-minute conflict in the two-year-old merger plan.

As per Bloomberg's report, a Zee representative, without commenting on the leadership issue, said in an emailed response that the company was “actively engaged” towards the timely completion of all prerequisites for the deal. Zee had already completed most of them and was in touch with Sony “on a regular basis,” he said.

In June, the Securities and Exchange Board of India (SEBI), alleged that the Mumbai-based media house fabricated loan recoveries to conceal private financing transactions orchestrated by its founder, Subhash Chandra. According to SEBI's interim order, Chandra and his son, Goenka, allegedly misused their positions to divert funds.

According to Bloomberg's report, the merger is teetering on the edge of collapse due to the intense final-lap confrontation, unless one of the partners concedes. The objective of the Sony-Zee deal was to establish India's largest entertainment company, equipped with the financial strength to rival global giants like Netflix Inc. and Amazon.com Inc., as well as local conglomerates such as Reliance Industries.

Sony will own a 50.86% stake in the merged entity, and Goenkas will own 3.99% if the deal goes through, with public shareholders in possession of the remaining stake as per the 2021 agreement.

According to the report, Sony is not considering an extension of the December 21 deadline.

Certainly, the merger has garnered nearly all required regulatory approvals, and its completion remains viable pending prompt resolution of outstanding issues between the two parties. Additionally, they can seek an extension of the merger deadline from India's company court.

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