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In a recent development, Sony Group has sent a termination letter to Zee Entertainment, calling off their $10 billion merger of their India operations. This decision comes following an impasse over the leadership of the combined entity, as reported by Bloomberg News on Monday, citing insider sources.
Sony Cites Unmet Conditions of Merger Agreement as Reason for Termination
According to Bloomberg's report, Sony cited unmet conditions of the merger agreement as the primary reason for terminating the deal in a letter sent to Zee in the early hours of Monday. The report added that the company is expected to disclose the letter to the exchange later.
Reuters noted that the merger between Sony and Zee has been in the works for over two years and has reached a stalemate over who will lead the combined company. Zee proposed CEO Punit Goenka, but Sony disagreed due to an ongoing market regulator probe into Goenka.
Zee had committed to the merger and was working towards closing the deal through "good faith negotiations," as recently stated on Friday. The company also sought to discuss extending the January 20th deadline to close the deal.
The collapse of this deal is perceived as hurting both Sony and Zee, as they were looking to scale up in the Indian market, which is currently undergoing a digital disruption. Additionally, the potential threat of increased competition intensity looms large if the Reliance-Disney deal goes through, according to Karan Taurani, an analyst at Elara Capital.
Zee Faces Declining Profits Amidst Heightened Market Competition
Zee is also grappling with declining profits, advertising revenue, and cash reserves in a market where global streaming giants like Netflix and Amazon.com compete for market share. The company's four-year pact with Disney's Star regarding TV broadcasting rights of certain cricket events will also be at risk if the merger deal collapses.
Analysts estimate that Zee would have to pay a staggering $1.32 billion to $1.44 billion over the agreement's duration.
The broadcaster is facing financial challenges as it missed an early-January deadline to pay $200 million, as reported by Bloomberg News on January 9th. In the most recent trading session, Zee shares closed 1.5% lower on Saturday in Mumbai.
Photo: Ayrus Hill/Unsplash
