Zee & Sony settle disputes over failed merger, will withdraw claims

ZEE Entertainment Enterprises Ltd. (ZEE), Culver Max Entertainment Pvt. Ltd. (CMEPL) operating as Sony Pictures Networks India (SPNI), together with its group company Bangla Entertainment Pvt. Ltd. (BEPL), have arrived at a comprehensive non-cash settlement, amicably resolving all disputes related to the Merger Co-operation Agreement and the Composite Scheme of Arrangement.  

As part of the settlement, the companies have mutually agreed to withdraw all respective claims against each other, in the ongoing arbitration at the Singapore  International Arbitration Centre (SIAC), and all related legal proceedings initiated in the  National Company Law Tribunal (NCLT) and other forums. The companies will also withdraw the respective Composite Schemes of Arrangement from the NCLT and inform the relevant regulatory authorities. 

Under the terms of the settlement, none of the parties will have any outstanding or continuing obligations or liabilities to the other. The settlement stems from a mutual understanding between the companies to independently pursue future growth. 

Karan Taurani, SVP- Research Analyst (Media, Consumer Discretionary and Internet), Elara Capital commented, "The above development (settlement by Sony and not imposing USD 90mn termination fee to Zee) has no material impact in terms of earnings estimates as this case was a status quo with regulators. We had not factored any adverse impact of the case (Sony Zee merger termination) in our earnings estimates."

Taurani notes that the recent development can offer clear respite to ZEEL’s core broadcasting business, which is trading at compelling valuations of 7x to one-year forward PE and has the potential to move towards the target multiple of 11x PE core broadcasting business.

Commenting on their expectations for growth, Taurani said, "We continue to maintain our positive stance on ZEEL, as we expect better growth rates in the festive season (Q3FY25), led by higher ad spends within FMCG verticals; further profitability too will continue to improve helped by cost-cutting initiatives, improved efficiencies, lower losses in ZEE5, which will drive valuation re-rating. We have a BUY rating on ZEEL with TP of INR 210."

In January 2024, Sony pulled out of the proposed USD 10.5 billion merger with ZEEL, citing the failure of the Indian firm to meet certain “closing conditions.” This merger, initially agreed upon on December 22, 2021, would have brought together ZEEL with Sony's Indian subsidiaries, Culver Max Entertainment Pvt Ltd (CMEPL) and Bangalore Entertainment Pvt Ltd (BEPL), creating a media powerhouse valued at around USD 10 billion.

In response to Sony's actions, ZEEL filed a case against the company, seeking a USD 90 million termination fee. This recent settlement effectively brings an end to these counterclaims and all related legal proceedings. Two days after terminating the merger deal, Sony filed for arbitration at the Singapore International Arbitration Centre (SIAC), claiming that ZEEL failed to meet the merger conditions and seeking a USD 90 million termination fee.