Sony seeks a termination fee of $90 mn from Zee over deal termination

The drama over the failed merger attempt between Sony and Zee Entertainment Enterprises Ltd (Zeel) has taken a fresh twist. Culver Max Entertainment (formerly Sony Pictures Networks India) (Culver Max) and Bangla Entertainment (BEPL) is seeking a termination fee of 90 million dollars. This morning Culver Max had sent a termination notice to Zeel.

Under the original terms there was 100 million dollars to be paid by either party as a penalty in case the deal did not go through. But that clause became void after 21 December according to reports. Culver Max is now seeking the earlier mentioned termination fee of 90 million dollars on account of alleged breaches by Zeel of the terms of MCA, invoking arbitration and seeking interim reliefs against Zeel. Zeel on its part has categorically denied all the assertions raised by Culver Max and BEPL on the alleged breaches under the terms of the Merger Co-operation Agreement (MCA), including their claims for the termination fee. The merger if it had succeeded would have seen the entity house 74 channels.

In its meeting held today Zeel’s board of directors noted that all efforts and steps were taken by Zeel in line with the Merger Cooperation Agreement, approved by its shareholders and all regulatory authorities. Zeel said that it has consistently worked towards the implementation of the mentioned scheme in the interest of the shareholders. Zeel has said that it also held several deliberations and good faith negotiations with Culver Max and BEPL, with a view to consider an extension of the merger completion timeline, that did not materialise.

Zeel has said that its board of directors is evaluating all the available options. On the basis the guidance received from the Board, Zeel will take all the necessary steps to protect the long-term interests of all its stakeholders, including by taking appropriate legal action and contesting Culver Max and BEPL’s claims in the arbitration proceedings.

Whether Zeel retaliates by claiming damages from Culver Max over the termination of the proposed merger remains to be seen.

Zeel noted that it had inked the Merger Co-operation Agreement with Culver Max and BEPL on 21 December 2021, in relation to the Composite Scheme of Arrangement, which was approved by the Mumbai bench of the Hon’ble National Company Law Tribunal (NCLT) on 10 and 11 August 2023, respectively.

Under the MCA, Zeel exercised its right to require Culver Max and BEPL to enter into good faith negotiations for a period of 30 days to arrive at a mutual agreement on the extension of the end date by a reasonable period of time for completion of the transaction as per the terms of the MCA.

During this period, despite conducting numerous deliberations in good faith, the parties failed to arrive at a consensus on the purported pending conditions precedent that required action on the part of both Zeel and Culver Max, BEPL under the terms of the MCA. Zeel noted that its MD, CEO Punit Goenka was agreeable 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, protections for conduct of pending investigations and legal proceedings in the best interest of Zeel’s directors and shareholders and the consequent modifications to the scheme to incorporate the same. Zeel proposed an extension of a maximum period of six months for consummation of the transaction. However, Culver Max did not provide any counter proposal for extension said Zeel. These discussions did not result in any proposal from Sony but they rather have chosen to terminate.

Zeel chairman R. Gopalan said, “The board of directors has taken note of Sony’s letters purporting to terminate the Merger Co-operation Agreement, on the Company’s proposed merger with and into Culver Max Entertainment Pvt. Ltd, invoking arbitration and seeking interim reliefs. We are evaluating the next steps and considering the appropriate course of action. The Board has noted that the Company took all the required steps in the course of its integration journey over the last two years, to ensure that the scheme is implemented at the earliest. That said, the Board would like to assure its stakeholders that the company will take all the necessary actions, in the best interest of all stakeholders, including by taking appropriate legal action and contesting Culver Max and BEPL’s claims in the arbitration proceedings. The Board has complete faith in the highly experienced senior management of the Company and will continue to guide the team. We recognize and value the trust our shareholders and stakeholders place in us, and we express gratitude for their continued support.”

Zeel added that it has displayed utmost commitment towards the merger by undertaking several permanent and irreversible steps, resulting in one time and recurring costs for Zeel. Despite this, the Company will continue to evaluate organic and inorganic opportunities for growth, leveraging the intrinsic value of its assets. Zeel said that it remains eternally grateful to its esteemed shareholders for their continued trust and belief in all its decisions. Zeel also expressed gratitude to the legal and regulatory authorities for their support in enabling the proposed merger and aims to continue working towards the overall growth of the sector and Indian economy at large. The company recognises the efforts sown in by the teams, and remains grateful to all its business partners for their continued support.

Recap: It was back in 21 September, 2021 that Zeel’s board of directors unanimously approved the merger with Sony. The two parties saw an opportunity in scale given that consolidation is the name of the game. There were areas that Zeel was present in like regional that Sony did not have a strong footing in and vice versa. This was followed by a 90-day due diligence period and the board gave the approval. However the first signs of trouble arose in February 2022 when IndusInd Bank filed for insolvency proceedings against Zeel. In July the two Stock exchanges BSE and NSE gave the merger the green signal.

In October the merger got a boost when the Competition Commission of India (CCI) cleared it with voluntary structural remedies. But in December IDBI Bank approached the National Company Law Tribunal (NCLT) against Zeel. It made a push to recover Rs 150 crore in what it said were dues and therefore pushed for insolvency proceedings.

In February 2023 the NCLT accepted insolvency proceedings against Zeel after IndusInd Bank filed a petition. Drama ensued in May when NCLT told NSE and BSE to reconsider the approvals given the previous year for the merger. Then in a move that is said to have made Sony uneasy in June Sebi banned Subhash Chandra and Punit Goenka from key executive positions. The reason was alleged fund siphoning. In August while NCLT said that the merger could proceed this was subsequently challenged by IDBI Bank and Axis Finance. SEBI announced an eight-month investigation into alleged fund misappropriation. Goenka and Chandra were not allowed to hold key positions.

Then Goenka challenged Sebi’s order, moving the Securities Appellate Tribunal (SAT) to contest the ban. In October SAT dismissed Sebi’s order that had not allowed Goenka to hold holding key positions. In November 2023 one of the important factors in the merger getting derailed took place when Sony said that it wanted its CEO NP Singh to lead the new merged company. In December IDBI Trusteeship lodged an appeal against Essel Group.

In December Zeel asked for an extension of the merger deadline. Both parties in public expressed confidence over negotiations. ZEEL had said that there were negotiations with Sony about extending the merger deadline. Earlier this month Punit Goenka in a bid to resolve the impasse offered to step down from being CEO. But it was too late to reverse the damage.

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