The largest Japanese company Sony which has its office in India finalized its great deal merger with India's Zee Entertainment on 22nd of September 2021 which got finally signed off on 21st of December 2021 after the due-diligence period of 90 days (ninety days). The two channels planned to merge all its assets and platforms in order to form one merged entity. This one entity combined will give a boost to the growth of the economy and facilitate better financial growth.

This combined platform will result in having 75 channels, film assets and two platforms for streaming and it will become one of the largest platform in the entertainment industry which might pose as a challenge for the Walt Disney's Hotstar. After the merging of the two companies, Sony India will have a majority stake of 50.86% of the total combined entity and the promoters and shareholders of Zee Entertainment will have 3.99% and 45.15% respectively.

The board of Zee Entertainment Enterprises Limited (ZEEL) approved the merger of the two companies and after the approval it was decided that the CEO and the MD of the combined entity would be  Mr. Puneet Goenka. ZEE limited has its strong command over creating contents and gained deep customer bonding over the past few years hence coupling it with Sony which has established success in sports and gaming would thereby contribute fruitful value to the managing team and increase the chances of the value of shareholder. After the merger, the entity shall be listed publicly in India and the transaction closing would be subject to approvals from the regulators, third-parties and shareholders.

Background of the Two Companies

• Zee Enterprises Limited
  Zee Entertainment Enterprises Limited (ZEEL) is one of the largest platforms for producing content for entertainment purposes to the public at large. ZEE Ltd's presence is over 190+ countries and is nearly accessible to 1.3 billion people across the world and is responsible for producing content in a variety of languages, genres, and so on. It has content of over 2,60,000 hours and has rights over 4,800 titles of movies worldwide. The mission of this company is to create content that will be driven by leadership and creativity, and their primary focus is on the development of the company while providing customers and stakeholders with fruitful values.
  
• Sony India
  Sony India, which is based in New Delhi, is an Indian corporation of the Japanese company Sony Corporation and its business mainly comprises sales, marketing, and after-sales services of electronic goods and software products. Sony emphasizes customer satisfaction and maintains high standards in providing services. Sony also aims to achieve a healthy and sustainable environment, contributing to enriching the lives of human beings and future generations. One of its key initiatives is the "Green Management Program 2025," which aims to reduce the use of plastic and energy consumption among consumers.
  

How Will the Merger Benefit the Two Entertainment Giants?

The merger of the two companies will result in a large entertainment media entity with a projected revenue generation of Rs 15,000 crore. Sony India is known for its non-fictional Hindi channels, while Zee Ltd features movies across generations. Once approved by the CCI, the merged entity will be a value-added business with a combined net profit of Rs 2000 crore. According to Mr. Punit Goenka, MD and CEO of Zee Limited, the merger will lead to meticulous growth in the market and unlock the potential of both entities. The expanded portfolio will reduce overlapping in audiences, viewership, and channels, and may position the merged entity as a major powerhouse in the movie industry—Zee with a strong presence in Bollywood and Sony well-reputed in Hollywood. This merger will improve operational efficiency by reducing costs and redundancies, while maintaining pricing strategy balance. Additionally, it will foster growth in technology, enhance user engagement, and provide a better overall experience.
 

Zee-Sony Merger and Its Relation with IP (Intellectual Property)

Although the Zee-Sony merger does not directly relate to Intellectual Property Law, it involves several indirect concerns:

• Both tech giants have a large library of content, referred to as IP assets. The merger would lead to one of the largest collections of IP assets, enhancing bargaining power.
• The CCI's scrutinizing power may influence how IP assets are protected post-merger. Creating a fair market is necessary to prevent monopoly practices.
• The different strategies employed by both companies impacted the merger's failure and led to divergent IP creation strategies, which include content creation, distribution, and licensing—key elements in the media and entertainment industry.
• Both companies reached a formal settlement to grow individually, focusing on the creation of IP content that sustains market competition.

In short, while the merger doesn't directly involve IP disputes, the management of vast IP content, compliance mechanisms, and strategic alignment strongly connect to IP assets and their relevance in the media sector.
However, The Biggest Merger Of Zee And Sony Was Called Off In The Beginning Of The Year 2024. Here We Will Look At The Time Period, The Reasons And Their Significant Changes.

Zee-Sony Merger Time Period

Time Period	Statement
September - 2021	A meeting regarding the merger of Zee Ltd and Sony was held on 21st of September, 2021 after the approval from Zee's board of directors.
December - 2021	The merger got approved by the BOD after the waiting period of 90 days due diligence thus working towards the creation of the biggest merger.
February - 2022	In February, it was held by the Indusland Bank in its petition that the company Zee has failed to pay an amount of Rs 83.08 crore.
March - 2022	In this month, the dispute regarding the payment was well settled between Indusland Bank and Zee Ltd.
July - 2022	The merger was approved by NSE and BSE.
October - 2022	The merger was approved by the CCI after making some changes.
December - 2022	IDBI Bank initiated the insolvency proceedings against Zee Ltd in NCLT in order to recover an amount of Rs 149.6 crore.
May - 2023	The NCLAT has directed the NCLT to set aside its order of directing for the merger review.
June - 2023	Mr. Punit Goenka and Mr. Subhash Chandra were allegedly removed from the position of power by SEBI due to the illegal transfer of funds.
August - 2023	NCLT Mumbai has approved the merger of the two entities after the creditor's objections being dismissed.
September - 2023	After the approval from NCLT, Axis Bank objected to it and filed an appeal at the NCLAT.
October - 2023	SEBI's order was later set aside by SAT (Securities Appellate Tribunal) and Mr. Punit Goenka was forbidden from holding such a power.
November - 2023	Mr. N.P. Singh was highly preferred to be the head of the merged entity by Sony.
December - 2023	Notice regarding the petition filed by IDBI and Axis Bank against the order of NCLT was thereby issued by NCLAT. Zee Ltd initiated its plans to extend the merger deadline and communicate its future plans to Sony.
January - 2023	A final decision by Sony was made to Zee Ltd to end the merger process.

 

Reasons Behind The Failure

• Initially, after the deal got finalized in 2021, Mr. Punit Goenka who is the CEO of Zee Ltd was supposed to be the Managing Director of the merged entity.
• Later, in the month of April 2023, Mr. Punit Goenka and Mr. Subhash Chandra were accused by SEBI of diverting the funds from Zee.
• The order was challenged by Mr. Goenka and it was set aside, thus pending the SEBI probe.
• Sony therefore made a decision to make Mr. N.P. Singh the head of the combined entity, thus replacing Mr. Goenka.
• Henceforth, Zee Ltd made several offers to Sony but the Japanese company did not pay any attention to Zee's offers, thereby failing to reach a final agreement on time. Eventually, with time the disagreement ended and Sony in turn demanded $90 million as the termination fees.

Significant Changes Occurring Post-Merger Failure

The Legal Fight

According to the reports, earlier in 2024 witnessed a massive change in the merger where Sony India was accusing Zee Ltd for failing to meet certain conditions for closing. Due to the issues not getting resolved, Sony India ended its deal with Zee Ltd in the month of January 2024 to which Zee Ltd was determined to bring a petition before the NCLT (National Company Law Tribunal) Bench and Sony India on the other hand, brought a suit of arbitration before the SIAC (Singapore International Arbitration Centre). The ultimate claimed amount by Sony India as a termination fee amounts to Rs 748.5 crore.
 

The Financial Impact

The failure of $10 billion merger had significant impact on finances. The failure has led to not meeting the terms of finances, doubt regarding the backlash on the economy and contractual obligations raised several questions, and the possibility of breach of certain provisions as provided in the agreement. Even the termination fee as claimed by Sony India further makes the whole financial scenario more complicated. A total of Rs 176.20 crore was spent in this deal in the financial year 2023 and a maximum of Rs 427 crore was spent by Zee Ltd alone in the financial year 2024.

Impact on the Shares of Zee Ltd

After the failure of the merger of two companies, Zee Ltd witnessed a drastic 30.5% fall in its share price with its price closing at Rs 152.50 with again a slight increase in its price to Rs 166.35 at the beginning of January 2024. Still, the tension about Zee's future continues to persist.

Challenges and Criticisms of the Merger

Despite the biggest merger between the two companies, the merger faced several challenges which can be listed below as follows:

• Creditors Raising Objections: Several creditors involved in the process of raising objections regarding the merger between the two companies include Axis Bank, IMAX Corporation, IDBI Bank Ltd, IDBI Trusteeship and JC Flowers Asset Recons. The creditors held that Essel Mauritius, an entity of Zee Ltd, was illegally trying to take Rs 1100 crore from SPE Mauritius (an entity of Sony). The payment demanded by Essel Mauritius is referred to as the non-compete fee and is considered fraudulent in deceiving the shareholders of Zee Ltd. Additionally, the NCLT bench further held that the merger of Zee-Sony was going to be exploited by the creditors, who also failed to fulfill their eligibility criteria under Section 230(4) of the Companies Act, 2013.
• Obstacles on the Way of Merger: The approval from the shareholders of Zee Ltd and the requirement for an MD and a CEO of the merged company to continue for five consecutive years pose an obstacle and may increase tension among shareholders.
• Conflicts Within the Internal System: Disagreements between Zee's shareholders and between the executives and Mr. Subhash Chandra created instability and delays in the process. Both companies' shareholders had varying opinions and interests, failing to reach a mutual agreement and adding complexity to the merger negotiations.
• Obstacles in Appointing MD and CEO: Initially, Mr. Punit Goenka and Mr. Subhash Chandra were to assume leadership of the merged entity. However, due to creditor disapproval and an interim order by SEBI, this decision was reversed, as SEBI's order was based on concerns of economic exploitation.
   

Observations Made by the NCLT Bench Post-Merger Failure

1. Initially, the NCLT Mumbai Bench passed the order of the merger on 10th August 2023, but later recalled the order, citing that the two companies had given mutual consent to withdraw the scheme and that a resolution had been passed by the BOD to withdraw such an amalgamation.
2. It was observed by the NCLT that the creditors raising objections owed money to several entities of Zee.
3. According to NCLT's observations, all the assets and liabilities of Zee Ltd would get transferred to the merged entity without affecting lender rights. All debts, liabilities, and borrowings would have been transferred, thereby enhancing rights and duties. The tribunal ruled in favor of the Zee-Sony merger despite objections from creditors.
4. While considering the scheme of arrangement under Section 230 of the Companies Act, 2013, the NCLT Bench accepted the commercial wisdom principle. This was observed in the case of Miheer Mafatlal vs Mafatlal Industries. According to the NCLT's findings, 99.9% of Zee Ltd's shareholders supported the scheme of arrangement.
5. The tribunal considered the non-compete fee of nearly Rs 1100 crore payable to Essel Mauritius (an asset of Zee Ltd) and held that the payment was not to defraud any lender but to safeguard the interests of Zee Ltd's shareholders by countering market competition.

Conclusion
In conclusion, both the companies Zee and Sony are the biggest tech giants and the merger of the two would definitely have created one of the largest OTT platform for streaming its variety contents across different languages and genres. The merged entity would have resulted in screening high quality of movies and series thus standing in the competition market with global and domestic platforms while also acting as a strong potential in the regional market.

This merger was also seen as a rival competition in the market with Disney-Reliance's merger. The failure in the merger created a negative impression thereby not up-scaling the Indian market which is already going through the phase of digital interruption.

The merger therefore proved to be very complex and pointed many loopholes in the media industry. It was believed  that the merger will benefit the stakeholders, creditors and the employees of Zee ltd but it failed to do so. This case study of Zee - Sony merger therefore acts as a unique  case study in merger and acquisitions and therefore it is to be kept in mind that regulatory scrutiny,  strategic alignment and content management are therefore essential in achieving a better future success.