Zee Entertainment, facing potential losses from a derailed merger with Sony, is contemplating legal action for damages if the deal falls through by the January 20 deadline. This development emerges amid the closure of profitable Zee businesses, a condition set by the Competition Commission of India (CCI) for the merger’s approval.
Compliance and Consequences: According to a report by the Hindu Businessline, to secure the CCI’s nod, Zee and Sony had to adhere to specific structural remedies, significantly impacting Zee. The company had to divest three of its Hindi channels – Big Magic, Zee Action, and Zee Classic.
Originally, the agreement included a $100 million penalty for withdrawal, but this provision expired on December 21. Despite an extended 30-day negotiation period, Sony is no longer obligated to pay this penalty if it backs out.
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A key sticking point in the negotiations is the future role of Punit Goenka, Zee’s Managing Director and CEO. While Sony resists Goenka holding any executive position in the merged firm due to an ongoing investigation against him, Zee insists on his continued leadership as a crucial merger term. Reportedly, Sony has not proposed any monetary compensation to encourage Goenka’s exit.
More visits to court: Experts believe that even if Zee’s lawsuit proceeds, it might not significantly impact Sony, given the smaller scale of the divested channels. However, Zee’s legal move could subject Sony to the challenges of another litigious process.
Market analysts recall Goenka’s previous legal tussle with Invesco, drawing parallels to the potential showdown with Sony. Invesco, once Zee’s largest shareholder, had aimed to replace Goenka and pivot the merger towards Reliance instead of Sony. The dispute escalated into a significant legal battle, concluding with Invesco divesting its Zee shares, marking a strategic win for Goenka.
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