Sony-Zee Merger Risks Collapse Over Eleventh-Hour CEO Drama: Report

The fate of the planned merger between Sony Group Corp.'s India unit and Zee Entertainment Enterprises Ltd. may be known as early as next week, according to people familiar with the matter, as the companies face a looming deadline to resolve their standoff or scuttle a long-awaited deal to create a $10 billion media giant.

Unless the two sides can agree on who'll lead the merged entity and give the final touches to the merger, Sony is likely to send a letter next week to Zee saying the stipulated demands for the merger couldn't be met, said the people, who asked not to be named as the information isn't public. That could be the death knell for the deal since there won't be enough time to tie all the loose ends by the formal Dec. 21 deadline, the people said.

Zee is insisting that its Chief Executive Officer Punit Goenka - also its founder's son - will helm the new entity, as agreed in the pact signed in 2021, while Sony is wary of his appointment given a regulatory probe against Goenka, the people added. This has created an eleventh-hour tussle in the two-year-old merger plan that has already seen a fair share of drama and delays.

A Zee representative, without commenting on the leadership issue, said in an emailed response that the company was "actively engaged" toward the timely completion of all prerequisites for the deal. Zee had already completed most of them and was in touch with Sony "on a regular basis," he said. Sony's representatives didn't respond to a request for comment.

The Securities and Exchange Board of India, the markets regulator, alleged in June that the Mumbai-based media house faked the recovery of loans to cover private financing deals by its founder, Subhash Chandra. Chandra and his son, Goenka, "abused their position" and siphoned off funds, Sebi said in an interim order.

While Goenka got a reprieve from an appellate authority against the Sebi order - it had barred him from being an executive or director position in a listed company - Sony still views the ongoing probe as an overhanging corporate governance issue, the people said. Local newspaper Mint first reported this impasse.

Who Blinks First

The last-lap tussle is pushing the merger to the brink of collapse unless one of the partners blinks. The Sony-Zee deal sought to create India's biggest entertainment company with the financial muscle to challenge global powerhouses, including Netflix Inc. and Amazon.com Inc., as well as local conglomerates such as Reliance Industries Ltd.

Sony will own a 50.86% stake in the merged entity and Goenka's family will own 3.99% if the deal goes through, with public shareholders in possession of the remaining stake, according to the 2021 agreement. Sony is not considering an extension of the Dec. 21 deadline, the people said.

To be sure, the proposed merger has received almost all regulatory approvals and can still be closed if the two sides expeditiously resolve their issues. They can also request India's company court for extending the merger deadline.

If closed, the transaction will help expand Sony's media business in the world's most populous country, with over 75 television channels and a market share of 37%, ahead of Disney-owned Star's 24%, according to a note from brokerage firm Motilal Oswal Financial Services Ltd.

Consolidation is already heating up in the sector with Reliance, which tried to buy out Zee earlier, in advanced talks to buyout Walt Disney Co.'s India operations, Bloomberg News reported last month.