Zee Demands $90 Million Termination Fee from Sony Over Failed Merger

In a dramatic turn of events, the much-anticipated $10 billion merger between Zee Entertainment Enterprises Ltd (ZEEL) and Sony Pictures Networks India, now known as Culver Max Entertainment Pvt. Ltd., along with its entity Bangla Entertainment Pvt. Ltd. (BEPL), was called off by Sony in January 2024. This decision has led to significant financial and legal repercussions for both parties.

The Termination and Its Aftermath

Sony terminated the merger on January 22, 2024, citing ZEEL’s failure to meet certain closing conditions despite extending the closing period by a month. This abrupt termination has not only led to a demand from Zee but also initiated a legal battle. Zee Entertainment has now demanded a termination fee of $90 million (approximately Rs 750 crore) from Culver Max and BEPL, alleging their failure to comply with the obligations under the Merger Cooperation Agreement (MCA).

In a stock exchange filing on May 23, Zee stated, “Culver Max and BEPL have failed to comply with their obligations under the Merger Cooperation Agreement. Therefore, the Company has terminated the MCA and called upon Culver Max and BEPL to pay the termination fee i.e., the aggregate amount equal to USD 90,000,000, in accordance with the MCA.”

Financial Strain and Legal Proceedings

The failed merger has been financially taxing for Zee Entertainment. The company had to incur Rs 432 crore in merger-related costs during FY24 and FY23, as revealed in its recent regulatory filings. The Singapore International Arbitration Centre (SIAC) also dismissed Sony Group’s request for interim relief against ZEEL, which sought to restrain Zee from approaching the National Company Law Tribunal (NCLT) to enforce the failed merger.

Despite these challenges, ZEEL maintained its willingness to meet most conditions required for the merger. The Mumbai bench of NCLT had approved the merger scheme of ZEEL with Sony group entities Culver Max Entertainment and BEPL on August 10, 2023. This merger could have created a $10 billion media entity, comprising over 70 TV channels, two video streaming services (ZEE5 and Sony LIV), and two film studios (Zee Studios and Sony Pictures Films India), potentially becoming the largest entertainment network in India.

Zee’s Financial Performance

Amidst the merger fallout, Zee Entertainment has managed to report a positive financial performance for the quarter ending in March 2024. The company registered a profit of Rs 13.35 crore, a significant turnaround from a loss of Rs 196 crore in the same period the previous year. This improvement is attributed to strong demand for advertising and reduced expenses.

Domestic advertising revenue for the quarter saw an 11% year-on-year increase, driven by the ongoing recovery in the macro advertising environment and increased spending by FMCG clients. Additionally, Zee’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) margins expanded to 9.7% from 7.2% a year earlier, indicating improved operational efficiency.

The failed merger between Zee Entertainment and Sony has led to a complex financial and legal situation, with Zee demanding a substantial termination fee and incurring significant merger-related costs. Despite these challenges, Zee’s recent financial performance indicates resilience and a potential path forward. The legal and financial ramifications of this failed merger will likely continue to unfold, impacting both entities in the foreseeable future.