Zee Entertainment faced Rs 432 crore merger costs in failed Sony deal

Zee Entertainment incurred Rs 432 crore in merger-related costs during financial years 2023-24 and 2022-23 due to its failed merger deal with Sony Group Corporation’s Indian media unit, Culver Max Entertainment, according to a report by The Economic Times.
The firm’s merger-related costs were Rs 256 crore in 2023-24 and Rs 176 crore in the previous year. The merger agreement with Culver Max Entertainment was terminated on January 22 due to disagreements over leadership and unmet closing conditions.

Signed in December 2021, the merger deal had received all key clearances from stock exchanges, the Competition Commission of India, and the National Company Law Tribunal.

As part of portfolio rationalisation and meeting merger conditions, Zee Entertainment incurred impairment charges of Rs 331 crore in 2022-23 due to the closure of certain businesses, including Margo Networks, ET said. This means that the value of the businesses was reduced on Zee’s financial statements to reflect their diminished worth or operational discontinuation.

The company stated that the impact on consolidated results was Rs 98 crore in 2022-23, as losses from these entities had been recorded in earlier financial results.

Costs, claims & arbitration
Additionally, the company estimated a liability of Rs 32 crore to fund closure costs in 2023-24. Zee Entertainment, which slashed its workforce by 15 per cent as part of aggressive cost-cutting measures, also recorded an employee termination cost of Rs 22 crore in a recent restructuring.

Regarding arbitration cases filed by Culver Max Entertainment and Star India, Zee Entertainment claimed there would be no material adverse impact as both cases were untenable.

Culver Max Entertainment has approached the Singapore International Arbitration Centre, seeking $90 million in termination fees from Zee Entertainment over alleged violations of the merger agreement.

Similarly, Star India has moved the London Court of International Arbitration, seeking directions for Zee Entertainment to either implement the International Cricket Council (ICC) TV rights agreement or provide compensation for damages suffered.

What was the Zee-Sony merger plan?
The Zee-Sony merger plan was a $10-billion merger proposal between Zee Entertainment Enterprises Ltd (ZEEL) and Sony Group Corp. The timeline of the merger saga includes key events such as the unanimous approval of the merger proposal by Zee’s board in September 2021, approval by stock exchanges in July 2022, and the subsequent termination of the merger plan by Sony in January 2024.

The termination led to ZEEL announcing its intention to take legal action against Sony Pictures Networks India (SPNI) due to disagreements over the leadership of the merged entity, particularly regarding the appointment of Punit Goenka as the head of the new entity.

Why was the Zee-Sony merger called off?
Sony terminated the merger plans on January 22, 2024, stating that the decision was taken because ‘closing conditions’ were not satisfied after two years of negotiations. It said that Zee failed to meet certain financial terms and conditions of the merger agreement, including with regard to cash availability and lack of commercial prudence, according to Sony’s termination notice.

Additionally, there were disagreements over the leadership of the merged entity, particularly regarding the appointment of Punit Goenka as the head. Sony was not confident moving forward with Goenka’s candidature due to an ongoing Sebi investigation against him.

Zee Q4FY24 financials
Zee Entertainment Enterprises Ltd, last week, reported a consolidated net profit of Rs 13.35 crore in the March quarter.

The company had posted a consolidated net loss of Rs 196.03 crore in the same period of the previous fiscal, Zee Entertainment Enterprises (ZEEL) said in a regulatory filing.

Consolidated total income in the quarter stood at Rs 2,185.29 crore as against Rs 2,126.35 crore in the corresponding period a year ago, it added.

In the fourth quarter of FY24, domestic advertising revenue grew 10.6 per cent year-on-year, driven by the continued recovery in the macro advertising environment and spending pickup by FMCG clients, while subscription revenue growth was driven by pick up in linear subscriptions. Businesss Stan