Sony-Zee deal fallout: Emails reveal clash over Russia assets, cricket deal


Before the failed merger of Sony Pictures Network and Zee Entertainment Enterprises Ltd, the two behemoths of the media industry clashed over more than 20 compliance issues, according to a report by Reuters news agency.

The email conversations between Sony’s legal and M&A executives in India and Los Angeles with top Zee executives provided undisclosed details on the high-stakes backroom tussle that failed the merger.

What led to Zee-Sony $10 billion merger failure? Details here

Zee-Sony breakup: Here’s what emails reveal

 

Russian assets

According to a Reuters report, the conflict was over the Indian firm’s failure to dispose of some Russian assets and its $1.4 billion Disney cricket rights deal.

Emails show there was a face-off between Sony and Zee about four Russian subsidiaries that dealt in content creation and distribution, as the merger agreement had stipulated no dealings with entities based in countries under US sanctions.

Sony Pictures said Zee had not ended ties with the Russian entities even though it was “absolutely critical”.

Zee’s counsel Venkatachalam responded by saying the divestment process had not been completed due to changing regulations in Russia and alternate structures were being explored, even though the business of those entities “was shut down in December 2022”, emails showed.

Zee-Sony merger deal fallout: Emergency arbitration to be held in Singapore

Cricket deal

Another key sticking point was Zee’s 2022 decision to enter into a $1.4 billion deal with Disney to purchase certain TV cricket rights for India.

Reuters citing emails said that Sony said Zee had decided to furnish a bank guarantee and a deposit totaling $406 million for TV cricket rights for India. Zee’s bid to take debt for the deal, which was “without prior written consent” of Sony, took the Indian firm’s total debt to more than $451 million – above the merger agreement threshold.

Sony scraps $10 billion merger of Indian arm as Zee fails to meet financial terms

Zee’s legal executive said that the cricket deal violated no merger conditions as the two sides wanted to encourage Zee’s expansion into sports.

South Africa channel

Aside from the Disney deal, Sony accused Zee of several other merger agreement breaches, including launching a new channel in South Africa during talks and granting a $3.3 million loan to an affiliate in India without specifying repayment terms.

We’ll lift Zee stake to 26%; no plan to raise external funds: Subhash Chandra

Zee said none of those things breached the deal terms. “We have borne great costs to ensure a successful merger between our companies,” Zee’s Venkatachalam wrote in an email.

The Japanese firms pulled the plug on the $10 billion merger with ZEEL on 22 January, while seeking $90 million for breach of conditions besides initiating arbitration.

Zee-Sony: What next after the merger collapse?

A Zee-Sony combination could have mounted a bigger challenge to the likes of Disney, Reliance, and foreign streaming giants Netflix and Amazon.

Sony said in a statement certain “closing conditions” to the merger were not satisfied despite “good faith discussions” with Zee, and the companies had been unable to agree upon an extension by their 21 January deadline.

“After more than two years of negotiations, we are extremely disappointed … We remain committed to growing our presence in this vibrant and fast-growing market,” it added.

Messy Sony-Zee breakup shows in business as in love partings are never easy

The collapse of the deal is a bigger setback for Zee, one of India’s best-known TV networks that started in 1992 but has seen its business struggle over the years. Its shares have fallen 27% since the merger was called off.Em

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Published: 01 Feb 2024, 09:35 AM IST



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