Zee Entertainment Enterprise Ltd (ZEEL) and Sony Group Corporation’s India unit Culver Max Entertainment had entered a $10 billion merger deal in December 2021 after clearances from Zee’s board, stock exchanges, the Competition Commission of India and the National Company Law Tribunal.
But this union was short lived as the merger agreement was terminated earlier this year in January. The reasons cited for this were disagreement over the new leadership of the merged entity and unmet closing conditions.
As per Sony’s termination notice, the unmet closing conditions included failure to meet criterias related to cash availability and lack of commercial prudence. On the leadership issue, Sony was not in favour of appointing Punnet Goenka as the head of the newly merged entity because of an ongoing SEBI investigation against him.
The recent regulatory filings have revealed that Zee Entertainment was liable for ₹432 crores merger related costs for the financial years 2023-24 and 2022-23 due to failure of its merger deal with Culver Max Entertainment. The break up of the above mentioned cost for the two financial years is: ₹256 crore in 2023-24 and ₹176 crore in 2022-23.
Moreover, as part of portfolio rationalisation and meeting merger conditions, Zee Entertainment had to incur impairment charges of ₹331 crore in 2022-23 due to the closure of certain businesses, including Margo Networks. This was done to show their reduced business value on Zee’s financial statements that corresponded to their less worth or operational discontinuation. It was further stated that Zee had a consolidated impact of only ₹98 crore in 2022-23 as the losses from these closed entities had been recorded in previous financial years.
It doesn’t end there, Zee has further estimated the liability to fund the closure cost at ₹32 crore for 2023-24. Also, the company has recorder a employee termination cost of ₹22 crore as part of its aggressive cost cutting measures that included laying off of 15% of its workforce.
If you thought that was it, you certainly aren’t aware of the fact that not just Sony but Star India has also filed arbitration case against Zee Entertainment. While Sony’s Culver Max Entertainment has moved to Singapore International Arbitration Centre, seeking $90 million in termination fees from Zee Entertainment over alleged violations of the merger agreement; Star India has approached London Court of International Arbitration seeking directions for Zee Entertainment to either implement the International Cricket Council (ICC) TV rights agreement between the two companies or provide compensation for damages the company has suffered.
All this reflects the gravity of the situation Zee is caught up in despite the company claiming that these cases are untenable and there would be no material adverse impact. Even if this is true, there is no denying that it would be a major blow to the brand’s image and any future deals Zee would wish to get into with other companies.
It also leads to shift in focus to dealing with such bigger issues than producing and sourcing quality content for customers who are paying for such services and ultimately leading to customer dissatisfaction and distrust for the company. While Zee might eventually make up for the financial losses somehow, the question that remains to be answered is how is it gonna build up from the loss of trust and regain its customer base.
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