Sony calls off $10bn Zee merger in India after two years of talks

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Sony has called off its merger with Zee Entertainment, ending its agreement with the Indian media group two years after striking an ambitious deal to create a $10bn entertainment powerhouse in the world’s fastest-growing large economy.

The Japanese group said in a statement on Monday that it had sent a termination letter to Zee after a tense weekend of negotiations failed to salvage the deal.

The talks collapsed at the weekend following a stand-off between Sony and Zee over the Japanese group’s refusal to allow chief executive Punit Goenka to stay on after the merger. Sony’s issues with the merger included an investigation by India’s markets regulator into fraud allegations against Goenka, according to multiple people involved in the talks.

Sony was also concerned about Zee’s financial performance, which has been hit by rising streaming costs and a soft advertising market. Zee’s operating revenues fell in the 2023 fiscal year, while earnings before interest, tax, depreciation and amortisation fell 38 per cent because of higher content costs.

In a statement, Sony said it was “extremely disappointed that the conditions to the merger were not satisfied” by the deadline, which had been set as January 21. The company added that it “remained committed to growing our presence” in India.

The deal’s collapse is the latest setback in Hollywood’s campaign to expand in India, where executives want to tap into the enormous cinema-loving population but have encountered intense local competition.

People familiar with Zee’s thinking said removing Goenka at this late stage would have been legally difficult and violated the 2021 merger pact with Sony. They also defended Zee’s performance amid a general downturn in the Indian media sector.

The deal was beset by a series of problems and delays, including the regulatory investigation into allegations that Goenka and his father, Zee founder Subhash Chandra, engaged in a “fraudulent and unfair” scheme to divert about Rs2bn ($24mn) from the company. Zee, Goenka and Chandra deny the allegations.

Despite the problems, Sony had remained committed to completing the deal with Zee until recently. The Japanese group has not ruled out renegotiating the deal from scratch.

Sony officials’ frustration with Zee came to a head last month after the Indian company said it could not close the deal by a December 21 deadline. Zee had failed to meet a number of requirements to move forward and asked to continue discussions for another 30 days. At the same time, two directors were voted off the board and a third director resigned.

Sony did not agree to extend the deadline, but the companies kept talking. The deadline passed at the weekend with no agreement.

Zee did not respond to a request for comment.

Zee’s share price is still up 35 per cent since last June after confidence in the merger grew, but analysts have warned that could reverse if the deal collapses. India’s stock market is closed on Monday for a public holiday.

The deal, which won approval from Indian regulators in August, would have created an entertainment conglomerate with more than 70 Indian TV channels, popular Bollywood studios and an extensive film library. 

Kenichiro Yoshida, Sony’s chief executive, was still bullish on the deal last year and featured the Indian business prominently during his strategy briefing.