Zee-Sony fallout: Zee incurred Rs 700-cr cost for merger deal, says report

Zee Sony deal: Zee Entertainment Enterprises Ltd has reportedly incurred a cost of Rs 700 crore to fulfill the conditions set by Sony to complete merger deal, a report said on Friday. The Subhash Chandra-controlled company is planning to claim Rs 700 crore for the Japanese media giant in the upcoming proceedings at the National Company Law Tribunal. Zee is planning to table these arguments in front of NCLT bench and intends to counter Sony’s termination notice claiming $90 million in damages 

“It has incurred/provided for in books of account approximately Rs 700 crore towards divestment of businesses, settlement of frivolous claims (against which Zee had a strong legal case), settlement of guarantees, procuring tail insurance to Sony’s satisfaction, discontinuing several businesses on Sony’s instructions and more,” Hindu Businessline reported citing legal documents submitted by the company.   

On January 21, Sony Group sent a notice to Zee Entertainment terminating the mega-merger worth $10 billion between the two entities. Later, Sony Group sought $90 million for breach of conditions besides initiating arbitration from ZEEL. 

In its termination notice, Sony alleged that ZEEL failed to meet some financial terms of the merger, and did not come up with a plan to address them.

Whereas, ZEEL has denied the charges and there has been no material adverse effect in terms of the merger agreement as indicated in Sony’s termination notice.

The report quoting legal sources said Zee is planning to show that it had multiple discussions with Sony, including discussions on the joint business plan where month-wise profit and loss, cash flows were discussed and provided to Sony.

Zee was continuously engaged in comprehensive deliberations with Sony for an extended period, with the aim to materialise the merger, the report said. In order to expedite the merger deal, Zee diligently complied with all strategic instructions provided by Sony. For this, Zee invested a significant amount of time, money and effort on actions specified by Sony. 

Earlier this week it was reported that the merger deal between Sony and Zee fell through due to disagreements over more than 20 compliance issues. Reuters reported that the clash involved issues such as Zee's failure to dispose of certain Russian assets and its $1.4 billion cricket rights deal with Disney.

Emails exchanged between Sony's legal and M&A executives in India and Los Angeles and Zee's top executives revealed a behind-the-scenes struggle that led to Sony's decision to cancel the $10 billion merger.

There was a disagreement between Sony and Zee over four Russian subsidiaries dealing in content creation and distribution.

The merger agreement had prohibited dealings with entities based in countries under US sanctions. Zee claimed the divestment process was delayed due to changing regulations in Russia.

"A number of events, circumstances, state of facts, conditions have occurred, which have, or are reasonably likely to have a 'material adverse effect' on the business, operations," Drew Shearer, a top Los Angeles-based Sony executive wrote in an email.

A week later, on Dec. 27, Zee's top India counsel Shyamala Venkatachalam accused Sony of attempting to "depict a narrative which has no basis in facts", saying Zee was dismayed by what it called was a "sudden volte face" from the company in bad faith.

Also read: Sony, Zee clashed over Russia assets, cricket deal before deal collapse: Report

Also read: 'We wish to clarify...': Zee on report about SEBI scrutiny of Subhash Chandra's stake hike claims