India’s Zee Entertainment (ZEE.NS) reassured investors and stakeholders that it remains committed to its merger with Sony’s (6758.T) local arm, amidst reports that the Japanese conglomerate might scrap the $10 billion deal. The reports suggested that Sony plans to file a termination notice before the January 20 deadline due to an impasse regarding the leadership of the merged company. Zee dismissed these reports as baseless and stated that it is focused on finalizing the deal.
The merger between Zee and Sony’s local arm is critical for the survival of both companies in the face of stiff competition from heavyweight Reliance Industries (RELI.NS) and Walt Disney’s (DIS.N) Indian media and entertainment businesses. Additionally, the merger aimed to enhance their ability to compete with streaming giants Netflix (NFLX.O) and Amazon.com (AMZN.O).
Zee has been grappling with a decline in advertisement revenue, resulting in a significant decrease in its cash reserves. In the first half of the fiscal year ending on September 30, Zee’s cash reserves fell to 2.48 billion rupees, down from 5.88 billion rupees compared to the same period the previous year. Furthermore, the company’s net profit declined by 68% during the same period.
Analysts have emphasized the importance of the deal for both companies. Vivekanand Subbaraman, a research analyst at brokerage Ambit Capital, stated that operating as separate entities in India would be incredibly difficult for Zee and Sony due to the ongoing merger proceedings between Reliance and Disney. Subbaraman believes that the deal collapsing would be surprising.
The merger’s termination would also cast doubts over Zee’s four-year pact with Disney’s Star for TV broadcasting rights of certain cricket events. Zee would have to pay $1.32 billion to $1.44 billion over the duration of the agreement, making it an unjustifiable expense if the merger does not go through, according to analysts at Emkay Global.
Recently, Zee missed the deadline to pay $200 million to Disney for TV rights to cricket matches. The potential collapse of the merger might further complicate Zee’s financial situation.
The merger faced delays after India’s markets regulator barred Zee CEO Punit Goenka from directorships of any listed company due to allegations of diverting company funds. Although the ban was lifted in October by a tribunal, it significantly affected the progress of the merger.
As of now, Sony and Zee are still in talks, and there is a possibility that a resolution will be reached, as per Bloomberg. Sony has not provided any comments on the merger.
