Zee-Sony legal war over failed deal hinges on $90-mn termination fees

Sony puts India’s advertisers in a tight spot

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26 Aug, 2025 12:21

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In the aftermath of the Zee-Sony merger fallout, the two companies will be involved in a long legal battle which involves a claim of $90 million termination fees.

After two years of twists and turns in the merger pact that was signed in 2021, Japan's Sony Group snapped the negotiations. The bone of contention was the merged entity's leadership as Sony was against Zee CEO Punit Goenka taking the charge due to a regulatory probe against him.

"Sony has already made it clear to initiate a legal battle by claiming $90 million fees as per the Agreement and so has Zee wherein they would be claiming for damages," said Alay Razvi, Partner, Accord Juris LLP, Hyderabad.

Zee in a statement noted that Goenka had agreed to step down in the interest of the merger and proposals in this regard were discussed, including for appointment of a director on the Board of the merged company, in the best interest of Zee’s directors and shareholders.

"The actual reason for Sony terminating the merger remains unknown," pointed out Karan Taurani, senior vice-president of Elara Capital.

The $90-million question

Now, the question is whether Zee will be liable to pay the termination fees which will be an additional burden to the company which is already dealing with low cash balance.

"Both parties will undergo an arbitration process for resolution of their disputes under the merger, said Dhiraj Mhetre, partner at Khaitan Legal Associates.

The determination of Zee's liability for paying termination fees to Sony is expected to be resolved through a competent legal forum, following the dispute resolution mechanism outlined in the contract, said Pratyush Miglani, managing partner at MVAC Advocates & Consultants. "This suggests that a prolonged legal battle is on the horizon."

Unless the parties are willing to walk away from this deal amicably, and without seeking costs from each other; we may be looking at a long legal battle arising from the fallout of this merger deal, said Abhilash Agrawal, counsel (corporate) at Law SB.

Also read: Sony calls off $10-billion merger deal, Zee denies allegations

He said that courts have routinely dismissed claims for the exact amounts of penalty imposed by one party on another. In case of Zee instituting a legal remedy then Sony will have to justify the quantum of termination fee being sought.

"If Zee refuses to pay the 'termination fee', Sony will have a right to approach the arbitral tribunal/courts claiming the same. Zee can claim bad faith on part of Sony in terminating the agreement, stating the real reason for the termination is that Sony wanted to renege on the terms of their Agreement, which provided for, inter alia, Punit Goenka being appointed as the managing director of the proposed merged entity, which Sony didn’t want," he added.

Also read: Zee refutes all claims by Sony, says evaluating options

Both sides hit hard

With TV facing competition from the digital media, Zee and Sony have been under pressure. Due to a weak advertising environment, Sony India’s ad revenue declined 4 percent year-on-year (YoY) in FY23 to Rs 3,300 crore, while Zee’s ad revenue fell 8 percent YoY to Rs 4,100 crore. Subscription revenue also remained under pressure in the last financial year because of a prolonged delay in the implementation of New Tariff Order 3.0 (NTO).

There has been significant erosion of the competitive position of Zee along with its financials, said Shriram Subramanian, founder and MD of InGovern Research Services, a proxy advisory firm. "Zee has less than Rs 500 crore cash equivalents to fund its growth and ward off the competitive pressures. Sony will have to chart its own growth path," he said.

Mhetre said that the termination of the merger will significantly impact Sony's efforts to expand its market share in the growing Indian market.

Zee could also be hit from related penalty or legal proceedings due to the battle with Sony over the non-compete fee, the ongoing legal proceedings by various creditors of the Essel group including Axis Finance, IDBI Bank and because of the likelihood of not fulfilling the contract with Disney, said Taurani.

Also read: Zee-Sony merger called off: A timeline of how the $10 billion deal took off and derailed

"Zee had signed a contract with Disney for sub-franchise of sports rights
(ICC tournaments) on TV from 2024 to 2027. Zee may now not fulfil this commitment as it has a cash balance of mere Rs 600 crore, versus potential contractual obligation of Rs 4,000 crore per year," he added.

Before the termination of the merger with Sony, Zee could have cited the monetary infusion of $1.5 billion the combined entity would have received from Sony, said Agrawal. "Now, Zee will have a tough time servicing its dues to Disney, and may be looking at a legal action from Disney for breach of their agreement. This goes into the realm of legality of penalty clauses in India, which is governed by the provisions of the Indian Contract Act, 1872."

Also read: ZEE spent Rs 366.6 crore on compliances for its merger with Sony

Also, the additional capital by Sony would have been beneficial to fund new content. In FY23, Zee’s profit after tax (PAT) stood at Rs 251.4 crore, down 76 percent YoY, facing pressure mainly due to the content cost and its investments in digital. On the other hand, Sony recorded a PAT of Rs 1,042 crore in FY23, up 6 percent YoY.

The aftermath of the merger fallout is likely to pose more problems for Zee than Sony as Zee may have to face a claim from Sony for the termination fee along with other financial commitments, said Agrawal.

Why the merger was key

The merger would have created the largest entertainment network in India with a 26 percent share of the viewership pie with better growth in advertising revenue than the industry average, analysts had said. While Zee would have benefited from Sony's strength in general entertainment (GEC) and sports, Sony had the advantage of Zee having an edge in regional content. The merger would also have helped the streaming platforms ZEE5 and SonyLIV with a scope to increase subscription video on-demand (SVOD) base and improvement in average revenue per user (ARPU).

While it is to be seen what will be Zee's next steps, there is a likelihood of the top five shareholders owning 30 percent of Zee, to work out a deal with Sony and without Zee CEO Punit Goenka.

"The legal impact of this merger termination may involve legal proceedings that could influence the reputation and future business endeavours of the parties involved," said Rajesh Sivaswamy, senior partner at King Stubb & Kasiva, Advocates and Attorneys.