In September 2021, the media and entertainment industry were shocked as ZEE Entertainment Enterprises Ltd (ZEEL) and Sony Pictures Network India (SPNI) announced their merger plans. The groundbreaking deal was valued at USD 10 billion. Fast forward to January 22, 2024, and the anticipated merger hit a dead end, leaving stakeholders and industry observers in suspense and confusion.
Original Agreement (September 2021)
In September 2021, ZEEL and SPNI disclosed the terms of their agreement. SPNI, the parent company of Sony, was set to make a substantial investment of USD 1.5 billion, resulting in the dilution of ZEEL’s ownership to 47.07%. In this new structure, SPNI would emerge as the majority stakeholder, holding 52.93% of the merged entity. The market responded positively to this news, as evidenced by the remarkable 87% surge in ZEEL’s share price between August 25th and September 25th, 2021. The merger was seen optimistically as both companies were industry giants, and together the merger would have been a success.
Reasons for Termination (January 22, 2024)
Fast forward to January 22, 2024, and the much-anticipated merger between ZEEL and SPNI had collapsed. Sony, in a notice to ZEE, officially terminated the agreement, citing the failure to reach an agreement on extending the merger cooperation agreement’s end date. Despite engaging in good-faith discussions, the closing conditions were not met after over two years of negotiations.
The disappointment was noticeable in Sony’s statement, expressing regret that the closing conditions for the merger were not satisfied. One of the possible contributing factors to the termination could have been the legal scrutiny surrounding ZEE CEO Punit Goenka. The Securities and Exchange Board of India (SEBI) had filed cases against Goenka over alleged misuse of funds as a Key Managerial Personnel (KMP). This made Sony uneasy about Goenka’s potential role as the CEO of the newly merged entity. In their termination notice, Sony also sought compensation of USD 90 million as a termination fee.
ZEEL Entertainment’s institutional shareholders are considering calling an Extraordinary General Meeting (EGM) to remove CEO Punit Goenka amid the prolonged delay in the ZEE-Sony merger. Some investors have reportedly approached SEBI seeking regulatory intervention. With the January 20, 2024, merger deadline passing without clarity, talks about an alternative plan for the merger are underway. Discussions also included a potential EGM to vote on Goenka’s removal. The delay stems from disagreements between Goenka and Sony regarding key provisions, with Sony seeking to bar Goenka from an executive role in the merged entity, while Goenka wishes to remain as MD and CEO. Institutional investors, including LIC, ICICI Prudential, Amansa Holdings, Nippon India, and Plutus Group, are considering action to break the impasse. This move is similar to a 2021 incident involving Invesco Mutual Fund, which called for an EGM to oust Goenka but withdrew the requisition notice after legal battles. The continued delays in the merger had a negative impact on investors and urged institutional shareholders to take a public stand by involving regulators followed by the share price of ZEEL falling by over 45% on a single trading day.
After Effects: Legal Disputes
In the aftermath of the terminated merger, ZEEL shareholders took Sony to court, asserting that none of the terms of the merger were violated. ZEEL contested the termination fee and sought to uphold the original agreement’s integrity. On January 30th, the National Company Law Tribunal accepted ZEEL’s petition for honoring the original Agreement. Furthermore, the Mumbai-bench issued a notice on the petition which stated that Sony Network Pictures India (SNPI) has to issue a reply within 3 weeks. The next hearing is set to be scheduled on March 12, 2024. Zee Entertainment announced that the Singapore Arbitration Centre rejected Sony Group’s plea to prevent Zee from approaching the National Company Law Tribunal for enforcing a called-off merger. The Emergency Arbitrator deemed it lacked jurisdiction to issue such an order, emphasizing that matters related to the merger scheme are within the statutory system and fall under the NCLT’s authority. The decision was conveyed through an award dated February 4, 2024, marking a development in the ongoing dispute between the two entities.
Internal Discussions
Internally, ZEEL was struggling to keep the board members calm. Talks are supposedly underway regarding the possibility of convening an Extraordinary General meeting (EGM). The merger delay with Sony made some of the investors restless and as a result, they approached SEBI for regulatory intervention amid the uncertainty of the merger. This had raised concerns about Goenka’s ability to lead the company effectively.
Investment Uncertainty
The unsuccessful merger has created uncertainty about the future of the combined company. This, along with the ongoing CEO investigation, has made stakeholders wary of making additional investments. The industry is now contemplating the consequences of this unforeseen development.
The major mergers happening in the entertainment sector this year
In a recent development as of January 5, 2024, both Reliance Jio and Disney have taken significant steps towards their proposed merger by appointing law firms and initiating anti-trust due diligence, as reported by Reuters. The collaboration between Reliance Jio and Disney+ Hotstar took a concrete step forward with the signing of a non-binding term sheet, as disclosed by the Economic Times on December 26, 2023. The reported terms indicate a 51:49 split in favor of Reliance Jio, aiming to establish India’s largest media and entertainment conglomerate. The anticipated completion of commercial and regulatory processes by February suggests an ambitious timeline. The merger strategy involves creating a “step-down subsidiary” of Viacom 18, incorporating Jio’s streaming service JioCinema, and absorbing Star India through a stock swap, presenting a transformative move in the Indian media landscape.
Speculations surrounding this merger had been circulating since September 2023, gaining traction with each development. Disney’s CEO, Robert Iger, addressed the company’s plans for its Indian ventures during the earnings call last quarter, expressing the desire to stay in the Indian market while also seeking opportunities to strengthen their position and improve financial performance. Iger noted challenges in certain segments of the Indian business, without specifying details. The reported decline of 7% in subscribers for Disney+ Hotstar in the same quarter underscores the complexities faced by the company in India, which prompted a strategic evaluation of options in light of the dynamic market.
The reasons behind this merger
In 2022, Disney+ Hotstar faced a setback as it lost the streaming rights for the Indian Premier League (IPL) cricket tournament to Viacom 18, a company owned by Reliance Industries. This move proved advantageous for Reliance Industries’ streaming service, JioCinema, as it became the platform for IPL streaming and gained significant success. During Reliance’s earnings call in July 2023, it was reported that JioCinema reached a peak viewership of 32 million during the IPL. Additionally, in 2023, JioCinema strengthened its content library by migrating HBO’s content to JioCinema from Disney+ Hotstar. Notably, this transition coincided with the launch of JioCinema’s premium annual subscription, making the platform even more appealing with the majority ownership now held by Jio over Disney+ Hotstar.
Conclusion
When four of the biggest players in the media and entertainment sector decide to merge with one another, it tells a tale about the viability of the business in this sector. Obviously, it is not necessarily profitable to run the business individually, but when you have the backing of industry giants, merging with them seems to be the most attractive plan. However, it might not always work out the way you want it to, as seen in the case of ZEE & Sony and Jio and Disney+ Hostar. The rationale behind these mergers is in the pursuit of enhanced viability, market dominance, and operational efficiency. By combining resources, expertise, and content libraries, these conglomerates aim to establish stronger, more competitive entities in the media and entertainment landscape. In the end, the show must go on.
Written by – Ruchika Kothari
Edited by – Kushi Mayur