The proposed merger between Culver Max Entertainment, formerly known as Sony Pictures Networks India ("SONY"), and Zee Entertainment Enterprises Limited ("ZEE"), was a significant deal in the Indian media and entertainment sector. The merger aimed to create a strong player in the industry by leveraging the strengths of both companies in scale, content, and distribution. Despite this, the deal faced several obstacles and ultimately failed to materialize. This article explores the reasons behind the failure of the SONY - ZEE merger and provides a brief overview of the timelines that led to its collapse.

Brief Timelines
ZEE's board of directors unanimously approved the company's merger with SONY during a September 21, 2021 meeting. After the 90-day due diligence period ended on December 21, the two companies signed the merger deal. The aim was to create a major media conglomerate valued at approximately $10 billion. SONY would invest USD 1.575 billion and hold a 52.93% stake in the merged entity, while ZEE would have the remaining 47.07%. However, ZEE faced multiple obstacles and hurdles due to its financial conditions after the merger deal was signed.

In February 2022, ZEE encountered its first major challenge when the private sector lender IndusInd Bank, as a Financial Creditor, applied section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC") before the Mumbai bench of the National Company Law Tribunal ("NCLT") to commence insolvency proceedings against ZEE, alleging a default of Rs 83.08 crore. In July 2022, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) approved the merger.

On October 4th, the Competition Commission of India (CCI), the country's anti-trust regulator, approved the proposed merger with certain modifications. Another major challenge for ZEE emerged in December 2022 when the private sector lender IDBI Bank, also a Financial Creditor, filed an application under section 7 of IBC and moved the NCLT against ZEE to initiate insolvency proceedings against the media firm to recover dues of ₹149.60 crore.

In February 2023, NCLT accepted insolvency proceedings against ZEE in response to a petition filed by IndusInd Bank in February 2022. However, in March 2023, the NCLT order allowing ZEE to be admitted to insolvency was overturned by the National Company Law Appellate Tribunal ("NCLAT"). ZEE and IndusInd Bank reached a settlement, and according to the agreement, payment obligations will be fulfilled by June 30 or within 7 days of the SONY- ZEE merger. Some of the money has already been paid in March 2023 as per the agreement.

In May 2023, the NCLAT set aside the NCLT's order because it did not comply with the principles of natural justice. The NCLAT directed the stock exchanges to reconsider their previous approval for the merger. In June 2023, the Securities Exchange Board of India ("SEBI") banned former chairman Subhash Chandra and MD & CEO Punit Goenka from holding any managerial or directorial positions in any listed entity. This action was taken after SEBI confirmed that the father-son duo had been siphoning off funds for their benefit.

In August 2023, the Mumbai bench of NCLT approved the merger between ZEE and SONY after obtaining all necessary permissions from NSE, BSE, and other regulatory bodies such as CCI and SEBI. During the same month, a new development occurred when Punit Goenka moved to the Securities Appellate Tribunal ("SAT") to challenge SEBI's confirmatory order.

In September 2023, IDBI Bank and Axis Finance filed an appeal in NCLAT against NCLT's approval of the ZEE - SONY merger. The following month, ZEE received a favourable ruling from SAT, which overturned SEBI's temporary ban on Punit Goenka from serving as a director in publicly listed companies. This ruling cleared the way for Punit Goenka to lead the proposed merged ZEE - SONY entity. In November, there were reports that SONY was considering NP Singh to lead the newly merged entity instead of Punit Goenka.

In December 2023, NCLAT issued a notice to ZEE regarding petitions filed by IDBI Bank and AXIS Finance in September against an NCLT order. The original deadline for completing the merger passed on December 21, and ZEE is seeking an extension for the deadline. SONY issued a statement expressing their anticipation of hearing ZEE's proposals.

On January 18, 2024, there was a significant development at ZEE where Punit Goenka offered to step down as the chief executive of the merged entity. The one-month grace period for discussing and finalizing the merger deal was set to expire on January 20. On January 22, 2024, SONY informed ZEE of its decision to end the merger cooperation agreement, as well as the composite scheme of arrangement that was initially agreed upon on December 22, 2021, effectively terminating the $10 billion deal after nearly two years of negotiations. The stated reasons for the termination include ZEE's failure to meet specific financial conditions, the inability to agree on the leadership structure of the proposed merged entity, and not fulfilling the conditions of the merger agreement.

On February 4, 2024, SONY approached the Singapore International Arbitration Centre ("SIAC") to seek interim relief and directions to prevent ZEE from seeking legal remedies from other forums, including the NCLT. However, the SIAC rejected SONY's request for urgent relief. Subsequently, one of the shareholders of ZEE approached the NCLT seeking an urgent order to ensure that any order passed by another forum regarding the ZEE - SONY merger would be subject to the NCLT's orders. Later, ZEE approached the NCLT Mumbai to enforce the $10 billion merger scheme, which the Tribunal had approved in August 2023 despite opposition from creditors. However, ZEE withdrew the plea in April 2024.

In August 2024, after a lengthy legal battle, ZEE and SONY, the two mega-merger companies, reached a breakthrough. They came to a non-cash settlement to amicably resolve all disputes related to the merger agreement. This settlement effectively put an end to what could have been the largest media entity in the country.

As part of the agreement, both companies agreed to withdraw all claims and counterclaims related to the merger, including ongoing arbitration proceedings at the SIAC and legal actions initiated in the NCLT and other forums. Additionally, the companies will withdraw their respective composite schemes of arrangement from the NCLT and inform the relevant regulatory authorities. Under the settlement's terms, neither party will have any further obligations or liabilities to the other.

The Rationale Behind The SONY - ZEE Merger:

>The Vision:

• The merger was seen as a strategic move to combine SONY's and ZEE's media assets, forming a leading entity in the Indian television market. The combined entity was expected to have a significant share of television viewership, strengthen its position in the digital space, and offer a wide range of channels and content.

Market Context

• Before the merger talks, SONY and ZEE were among the largest media conglomerates in India. Sony Pictures Networks India, a subsidiary of Sony Corporation, Japan had a strong presence in the country with a variety of entertainment, sports, and movie channels. Zee Entertainment Enterprises Limited, on the other hand, had an extensive network of channels catering to diverse audiences across India.

Strategic Goals

• Enhanced Content Portfolio: Combining ZEE's extensive content library with SONY's offerings to create a more compelling content offering.
• Increased Market Share: Obtaining a larger share of the television viewership and advertising market.
• Digital Synergies: Using the growing digital space to enhance streaming and online presence.
   

Reasons for the Failure of the Sony-Zee Merger

• Regulatory Hurdles: The merger faced challenges in securing regulatory approvals, especially from the Competition Commission of India (CCI) and other regulatory bodies. Concerns about potential monopolistic practices and the impact on competition in the Indian media landscape led to prolonged delays and uncertainty.
• Financial and Operational Concerns:
  • Debt Issues: ZEE's significant debt complicated the merger discussions, raising concerns about integrating the companies without incurring substantial risks for SONY.
  • Operational Integration: The integration of two large media entities presented complex operational challenges such as differences in corporate cultures, management styles, and operational processes.
• Internal Conflicts:
  • Leadership Disputes: Internal disagreements among ZEE's leadership, particularly between founder Subhash Chandra and other key executives, created instability and led to strategic disagreements and delays.
  • Shareholder Discontent: Shareholders of both companies had varying interests and concerns. ZEE's shareholders were particularly vocal about the deal's terms, questioning its fairness and potential impact on their investments, adding complexity to the merger negotiations.

Key Takeaways

• Importance of Due Diligence: The merger highlighted the critical importance of thorough due diligence. Proper assessment of financials, regulatory implications, and operational integration plans is essential for successful mergers and acquisitions. The failure underscored the need for comprehensive evaluations before finalizing such deals.
• Regulatory Considerations: Navigating regulatory landscapes is a crucial aspect of mergers, especially in markets with strict competition laws. Companies must anticipate and address potential regulatory challenges early in the negotiation process to avoid delays and complications.
• Internal Alignment: Successful mergers require alignment among stakeholders, including leadership and shareholders. Clear communication, shared goals, and effective governance structures are vital for overcoming internal conflicts and ensuring smooth integration.

Conclusion
The failure of the SONY - ZEE merger is a notable case study highlighting the challenges involved in high-profile mergers and acquisitions within the media and entertainment sector. Regulatory obstacles, financial and operational difficulties, internal conflicts, and market dynamics all contributed to the deal falling through. As SONY and ZEE continue to operate separately, they will use the lessons learned from this experience to inform their future strategies and approaches in navigating the competitive media landscape.

Written By: Milan Asati (BA. LLB) Fifth Year Law Student of Adv. Balasaheb Apte College of Law, affiliated with the University of Mumbai