Sony board meets today to decide fate of $10-billion merger with Zee Entertainment

The Japanese conglomerate is contemplating the termination of the deal, mainly attributed to an impasse regarding the leadership of the merged entity.

Sony Group is said to have convened a board meeting on January 19 to arrive at a crucial decision on the proposed $10-billion merger of its India operations with Zee Entertainment Enterprises, according to people familiar with the matter, reported the Economic Times. The company is likely to convey the decision to the Tokyo Stock Exchange early next week, signalling potential discontinuation of the merger plan.

Moneycontrol could not verify the report independently.

Reports suggest that the Japanese conglomerate is also weighing whether to call off the deal, primarily because of a protracted stalemate over the leadership of the merged entity. The core issue centres around the role of Punit Goenka, Zee's chief executive officer and son of its founder Subhash Chandra, in guiding the combined venture.

Although the deal agreed upon in 2021 stated that Goenka would be the CEO of the new company, Sony has changed its position and does not want him to lead the company, particularly given the ongoing regulatory investigation.

In June, the Securities and Exchange Board of India (Sebi) alleged that Zee engaged in deceptive practices by falsely claiming the recovery of loans to hide private financing deals linked to Chandra. The market regulator, in an interim order, stated that Chandra and his son Goenka misused their positions and diverted funds. As a result, Goenka was prohibited from holding executive or director positions in listed companies.

Shares of Zee Entertainment saw a surge of more than 7 percent on January 18, driven by the announcement that Goenka has volunteered to relinquish the position of the chief executive after the merger with Sony Pictures.

The market expected the completion of the deal by December 21, 2023, which was the stipulated deadline. However, Zee requested Sony to extend the deadline to address crucial issues, including the leadership role of Goenka in the merged entity, signalling that talks on key matters may require additional time beyond the initially set deadline.

However, insiders at Sony indicated that even if Goenka agrees to step down on January 19, the various condition precedent pacts will require thorough scrutiny, and final adjustments must be made to the company's finances. Since the announcement of the merger, Zee's net profit witnessed a massive decline, reaching Rs 48 crore in FY23 compared to Rs 956 crore in FY22 and Rs 793 crore in FY21.

The financial daily quoted an unnamed source stating that it is now apparent that Goenka cannot lead the new company. If the merger is to move forward, he would need to step down from his position on the day the new merged company is established.