It was billed as the mother of mergers in the entertainment industry. But after many fits and starts, and extended deadlines, the deal has fallen through. Japan’s Sony Group on Monday called off its $10-billion merger with Zee Entertainment. Though the Sony notice says “the closing conditions to the merger were not satisfied” by Zee, it is well known that the impasse was mainly because of disputes on who will lead the merged entity. The two giants had penned an ‘intent to merge’ deal in December 2021, but the formal marriage kept getting pushed back. Initially, it was because of a SEBI investigation on Zee’s promoters; more recently, Sony rejected an earlier understanding that Zee’s Punit Goenka would head the new board.
The merger would have been a win-win. Sony has deep pockets, but has been struggling in India for a wider reach. On the other hand, Zee has a strong regional presence and one of the largest bouquets of channels. The break-up has, therefore, become a ‘loss-loss’ for the two. It comes at a time when Star-Disney is close to creating a behemoth with the Reliance Group. Sony and Zee will be struggling to compete on their own. Zee is in financial doldrums with few options for fresh funding—its net profit dipped sharply to just Rs 48 crore in 2022-23 from the previous year’s Rs 956 crore.
As Zee and Sony come to terms with the new phase of claims and court battles, there are many lessons to be learnt. First, you cannot drag a merger process for this long and hope to succeed. The two have opened themselves to prolonged regulatory glare and have allowed egos to play havoc. Second, due diligence and targets should have been fixed before engaging in the talks.
The holdings in the new entity after a $1.5 billion infusion by Sony would have roughly been 51 per cent for Sony, 4 per cent for Zee’s promoters, and 45 per cent for the public. Initially, Sony was to keep seven of the nine board seats but allow Zee’s Punit Goenka to head the company. This formula changed mid-stream and Sony wanted full command. Maybe with the Zee promoters holding just 4 per cent, it should have been an ‘acquisition’ by Sony, not a ‘merger’. From the consumer’s point of view, there is an upside: more and diverse competing entities may provide better and cheaper entertainment options.