Sony and Zee disagreed on more than 20 compliance issues, including the Indian firm’s failure to dispose of certain Russian assets and its $1.4 billion Disney cricket rights deal, before the scrapping of their India merger, as per internal emails reviewed by Reuters. The collapse of the deal represents a more substantial setback for Zee, one of India’s best-known TV networks that started in 1992 but witnessed struggle over the years.
Sony and Zee Clash Unveiled in Email Exchange Over Failed $10 Billion Merger
Sony’s legal and M&A executives in India and Los Angeles engaged in communications with top Zee executives, revealing undisclosed details about the high-stakes backroom tussle that preceded the Japanese firm’s decision to pull the plug on the $10 billion merger on Jan 22. During the exchange of emails between Dec. 20 and Jan. 9, executives from both companies accused each other of not honoring the merger commitments. Zee executives repeatedly asserted that there was nothing out of line and requested Sony to extend the closure deadline.
Email Exchanges Reveal Strain and Setback in a Two-Year Endeavor
In an email, a top Los Angeles-based Sony executive, Drew Shearer, expressed that a number of events and circumstances have occurred, or are reasonably likely to have a ‘material adverse effect’ on the business operations. A week later, on Dec. 27, Shyamala Venkatachalam, Zee’s top India counsel, accused Sony of attempting to “depict a narrative which has no basis in facts,” expressing dismay at what Zee considered a “sudden volte face” from the company in bad faith.
No comments were provided by spokespersons for Zee and Sony. The Zee-Sony merger, underway for two years, would have created an Indian TV juggernaut with over 90 channels spanning sports, entertainment, and news, competing with Walt Disney and Mukesh Ambani’s Reliance.
The deal’s collapse represents a significant setback for Zee, a well-known Indian TV network since 1992, witnessing a 27% decline in shares since the merger’s cancellation.
Lack of Transparency Surrounding Sony and Zee Merger Collapse
According to Shriram Subramanian, founder of proxy advisory firm InGovern, mutual funds and other investors, owning 96% of Zee, remain unaware of why the merger collapsed, as the company has not disclosed any details. Subramanian emphasized, “Investors deserve to know what went on behind the scenes.”
Emails reveal a face-off between Sony and Zee concerning four Russian subsidiaries involved in content creation and distribution. The merger agreement stipulated no dealings with entities based in countries under U.S. sanctions, and Russia is currently under Western sanctions due to the Ukraine war.
Sony and Zee Clash Over Russian Entities, Financial Terms, and Disney Cricket Deal
In a Jan. 5 email, Erik Moreno, executive vice president for corporate development and M&A at Sony Pictures Entertainment, mentioned that Zee had not terminated ties with the Russian entities, despite it being “absolutely critical,” emphasizing that the merged entity “would under no circumstances inherit the Russian entities.” Zee’s counsel, Venkatachalam, responded, stating that the divestment process was incomplete due to changing regulations in Russia, and alternative structures were being explored. Emails indicated that the business of those entities had been shut down in December 2022.
Sony’s confidential termination notice, reported by Reuters on Monday, accused Zee of not meeting certain financial terms, including required cash reserves. Zee denies these allegations. The emails further highlight a significant sticking point: Zee’s decision in 2022 to enter into a $1.4 billion deal with Disney to purchase specific TV cricket rights for India.
Sony and Zee Clash Over Debt, Cricket Deal, and Merger Agreement
Zee decided to furnish a bank guarantee and a deposit totaling $406 million for the Disney cricket deal, according to Sony. Zee’s attempt to take debt for the deal, “without prior written consent” of Sony, exceeded the merger agreement threshold, pushing the Indian firm’s total debt above the specified limit.
In a Jan. 5 email, Moreno stated that Sony had repeatedly raised concerns about the Disney alliance agreement, including the agreed-upon consideration to be paid. In response, Zee’s legal executive argued in the emails that Sony’s allegations were raised too late and were “reprehensible and unfortunate.” The cricket deal, violating no merger conditions, aimed to encourage Zee’s expansion into sports, according to the arguments presented in the emails.
Reuters reported that Zee has decided to terminate its cricket deal with Disney due to a lack of funds.
Accusations of Breaches Beyond Disney Deal in Zee Merger
Apart from the Disney deal, Sony accused Zee of several other breaches in the merger agreement, as revealed in the emails. These breaches included launching a new channel in South Africa during talks and granting a $3.3 million loan to an affiliate in India without specifying a repayment term. Zee responded by stating that none of these actions breached the deal terms. In an email, Zee’s Venkatachalam emphasized, “We have borne great costs to ensure a successful merger between our companies.