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May 22, 2024

Zee Entertainment’s Rs 432 Crore Merger Misstep: Unraveling the Failed Sony Deal

Zee Entertainment’s ambitious merger plans with Sony Group Corporation’s Indian media unit, Culver Max Entertainment, ended in a costly misstep, with the company incurring a staggering Rs 432 crore in merger-related costs across the financial years 2023-24 and 2022-23. The failed merger, as reported by The Economic Times, saw Zee Entertainment facing challenges primarily due to disagreements over leadership and unmet closing conditions.

The merger agreement, signed in December 2021, had initially seemed promising, having received all essential clearances from stock exchanges, the Competition Commission of India, and the National Company Law Tribunal. However, the dream fizzled out when the deal was terminated on January 22, marking the culmination of two years of negotiations.

The financial toll on Zee Entertainment was significant. The firm reported merger-related costs of Rs 256 crore in 2023-24 and Rs 176 crore in the preceding year. Moreover, as part of portfolio rationalization and meeting merger conditions, Zee incurred impairment charges of Rs 331 crore in 2022-23, mainly due to the closure of certain businesses, including Margo Networks.

While navigating through the aftermath of the failed merger, Zee Entertainment also faced additional financial burdens. It estimated a liability of Rs 32 crore to cover closure costs in 2023-24 and recorded an employee termination cost of Rs 22 crore as part of recent restructuring efforts, which included a 15% reduction in its workforce.

The road ahead for Zee Entertainment is not devoid of legal hurdles. Arbitration cases filed by Culver Max Entertainment and Star India pose potential challenges, though Zee Entertainment remains optimistic, asserting that these cases would have no material adverse impact, deeming them untenable.

Culver Max Entertainment has sought $90 million in termination fees from Zee Entertainment through the Singapore International Arbitration Centre, alleging violations of the merger agreement. Similarly, Star India has taken its grievances to the London Court of International Arbitration, demanding implementation of the International Cricket Council (ICC) TV rights agreement or appropriate compensation for damages suffered.

The failed Zee-Sony merger not only incurred financial losses but also raised questions about the leadership and decision-making processes within Zee Entertainment. Disagreements over the appointment of Punit Goenka as the head of the merged entity became a pivotal issue, with Sony expressing concerns due to an ongoing investigation against Goenka by the Securities and Exchange Board of India (Sebi).

In the aftermath of the terminated merger, Zee Entertainment disclosed its fourth-quarter financials for FY24, reporting a consolidated net profit of Rs 13.35 crore. This marked a significant turnaround from the consolidated net loss of Rs 196.03 crore in the corresponding period of the previous fiscal year. Despite the setback, Zee Entertainment managed to achieve a consolidated total income of Rs 2,185.29 crore in the quarter, reflecting resilience amidst adversity.

The domestic advertising revenue witnessed a commendable growth of 10.6% year-on-year in the fourth quarter of FY24, driven by the macro advertising environment’s continued recovery and increased spending by FMCG clients. Additionally, subscription revenue growth was fueled by a pickup in linear subscriptions, indicating positive momentum despite the challenges faced during the failed merger saga.

In conclusion, while the failed merger with Sony may have inflicted short-term setbacks and financial losses on Zee Entertainment, the company’s resilient performance and strategic initiatives signal a potential for recovery and future growth prospects amidst a rapidly evolving media landscape.

Jhumpa Lahiri

Jhumpa Lahiri

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