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Sony is prepared to call off a merger agreement between its Indian arm and Zee Entertainment, the subcontinent’s largest listed media group, following numerous delays to complete a deal that would create a $10bn entertainment business, according to two people with direct knowledge of the talks.
Sony’s frustrations with Zee reached a tipping point last month when the Indian company admitted it could not close the deal by a December 21 deadline. Zee failed to meet a number of requirements — including asset disposals — to move forward and said it wanted to continue discussions for another 30 days as allowed under the terms of the 2021 merger agreement.
But Sony has not agreed to a deadline extension. “Sony’s at the end of its rope,” one of the people said.
Although negotiations in India are at a critical juncture, the management team in Tokyo is still hopeful about the Zee merger and would prefer not to walk away from the deal, said another person close to the talks.
The deal won approval from Indian regulators in August, clearing the way for Sony and Zee to create an entertainment conglomerate with more than 70 Indian TV channels, popular Bollywood studios and an extensive film library. Kenichiro Yoshida, Sony’s chief executive, has championed the deal as a way to push further into India’s large, high-growth entertainment market. He featured the Indian business prominently during his strategy briefing last year.
But the deal, agreed in late 2021, has been plagued by serious setbacks. India’s Securities and Exchange Board last year banned Zee’s chief executive Punit Goenka, who was set to lead the combined group, from directing any listed company for a year for allegedly diverting funds from Zee and the group’s other listed entities to founding shareholders. The SEBI order was later overturned.
Zee is still pushing for Goenka to lead the company if the deal is completed, but Sony has doubts about his role in the merged entity, particularly if the allegations are upheld, according to people familiar with the talks.
While the regulatory issues regarding Goenka have posed a hurdle, the people added that Sony was also concerned about Zee’s declining financial performance.
Its operating revenues fell in the 2023 fiscal year, while earnings before interest, tax, depreciation and amortisation fell 38 per cent due to higher content costs.
Some of Zee’s creditors have sought to launch insolvency proceedings against the company, with one case currently grinding its way through the courts. Three directors also left Zee Entertainment last month.
The Sony-Zee problems come as India’s competitive entertainment industry is in flux. Disney has held discussions about forming a joint venture between its Star business and Reliance Industries, the Indian conglomerate run by billionaire Mukesh Ambani, according to people familiar with the discussions.
The talks with Reliance came after Disney sought to lessen its exposure to India, where its local streaming business has been hurt by a loss of IPL cricket rights.
Sony and Zee declined to comment on the latest setback to the deal, which was first reported by Bloomberg on Monday. Zee Entertainment’s share price fell 10 per cent when markets opened on Tuesday.
The companies have continued discussions since the expiration of the December 21 deadline. Sony said last month it looked forward to “hearing Zee’s proposals and how they plan to complete the remaining critical closing conditions”.
If the merger does proceed, it would result in Sony holding a 53 per cent stake in the combined entity.
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