More than two years after two media giants, Zee Entertainment and Sony, announced the plan to merge their operations in India, the deal is reportedly on the verge of falling apart. The reports triggered a sell-off in Zee Entertainment shares, with the stock tumbling more than 7 per cent on the BSE on Tuesday, even as Zee termed the report baseless.
Zee Entertainment and Sony had announced merger plans back in 2021. The merger of Zee and Sony would have created a potential behemoth in the country's broadcasting space. The requisite approvals for the merger have also been received since. But, the deal is potentially stuck over who should lead the company.
As per the initial contours of the deal, the merged entity would be headed by Zee Entertainment MD Punit Goenka. But, in the last two years, a lot have happened. Notably, Goenka and Zee Entertainment founder Subhash Chandra were barred by market regulator SEBI in June 2023 from holding any managerial or directorial position in Zee Entertainment for alleged siphoning of funds.
That order was later set aside by the Securities Appellate Tribunal in October. But, according to reports, Sony executives are not keen on Goenka heading the entity now in the backdrop of the SEBI issue. Instead, Sony is pushing for its own MD and CEO N.P. Singh to be the CEO of the merged entity. The disagreement over the top job is where the deal seems to be stuck and at a stage where Sony perhaps is willing to walk away.
Zee Entertainment says the news is "baseless" and "factually incorrect." "We wish to reiterate that the company is committed to the merger with Sony and is continuing to work towards a successful closure of the proposed merger," it said in a statement on Tuesday.
Sony hasn't officially commented on the reports of the deal likely falling apart. In December, commenting on Zee's notice to exchanges seeking to extend the date to make the deal effective, Sony had said it looked forward to hearing Zee’s proposals and how they planned to complete the remaining critical closing conditions.
These developments don't come at an opportune time for Zee or Sony. Reliance Industries, which has a strong presence in the media and entertainment space through ventures like Network18 and Viacom18, has been in talks with Walt Disney to acquire the latter's India business through a cash and stock deal. If this deal does go through, then the entity, which will be majorly owned by Reliance, will emerge as the largest player in the media industry in India.
A dip in Disney Hotstar's subscriber base in the country over the last few quarters is among the reasons that Disney is looking for a deal. Reliance, on the other hand, has in recent times bolstered its media offerings with Viacom18 securing a deal with Warner Brothers last year to stream popular HBO channels in India as well as stream HBO content over JioCinema. Viacom has a portfolio of 38 TV channels across genres. Star India has a bouquet of 77 channels. The merger will make it a powerhouse, if it manages to sail past the competition regulator.
In this backdrop, if Sony and Zee are not able to stitch the much-awaited deal, it will be a loss for both of them, especially in the wake of this potential deal between Reliance and Disney, say analysts.
"The potentially merged Sony-Zee entity would have been a formidable competitor to the Reliance-Disney association, given that it has fared better than the latter on most parameters. However, the standalone entities can be vulnerable to competition from the significantly larger entity (if the Reliance-Disney merger gets consummated)," said Pulkit Chawla, research analyst at Emkay Global Financial Services.
If the deal doesn't go through, Zee and Sony risk foregoing various synergies accruing from better bargaining power with content producers, distributors and advertisers, along with some cost rationalisation, said Chawla.
While, Zee's streaming service Zee5 has seen losses widen, Sony has managed to scale its subscription video on demand (SVOD) base better, noted the analyst. But, Sony hasn't been able to achieve leadership on the linear TV side.
"The failure of the merger could force both companies to have a complete relook at their strategies, potentially squandering a time of more than two years," said Chawla.
Zee Entertainment's shares closed 7.6 per cent lower at Rs 256.25 on the BSE on Tuesday. The BSE Sensex ended up 31 points or 0.04 per cent at 71,386.21 level.