Mumbai: According to media reports, Sony is expected to call of USD 10bn merger with Zee due to a standoff over whether Zee’s CEO Punit Goenka would lead the merged entity.

Sony plans to file the termination notice before a 20 Jan 2024, extended deadline for closing the deal, saying some of the conditions necessary for the merger had not been met.

Discussions are still ongoing between the two sides and a resolution can still emerge before the deadline.

View

We don’t foresee any negative impact of above so far. As per our checks, deal conversations continue and will most likely go ahead without Goenka as CEO; we expect a final clarity on the extension of the deal by third of week of January’24, which is almost a month ahead of the 20 Dec’2023 agreement cut off date. Conversations continue to happen for both parties, however no final outcome has been reached yet on terms of the deal.

We continue to believe that the deal is equally important for both entities with competitive intensity growing due to Disney/RIL talks gaining traction.

Maintain our view the likelihood of the deal going through remains high, Zee had made a statement on 20 Dec, 2023 on entering fair negotiations with Sony, which indicates that they too are very much in favour of the deal going through.

We will await more updates and any official statement from both parties, in case of change in stance. We don’t foresee Sony agreeing on Mr Punit becoming CEO, due to the ongoing investigation against him. However, there is a very small chance of Goenka putting the deal at risk due to him wanting to become CEO, even if term sheet and deal condition mentions that Zee has moved up 50 per cent over the last one year, despite a muted financial performance , largely on the back of valuation multiple re-rating due to the merger with Sony Corp; any potential risk of the merger getting called off by Sony will have a significant negative impact on valuations.

Post the change in deal terms/ potential name of a new CEO for the merged Co, shareholder, Board, ROC (Registrar of Companies) and MIB (Ministry of Information and Broadcasting) approval may be needed which may only take a few weeks; our legal experts indicate that a fresh NCLT/CCI approval will not be needed for change in CEO of the merged co; further, as per our assessment - the NCLT/CCI  approval isn’t time bound, which means any potential extension has no negative impact on the merger.

The credit of this article is attributed to Elara Capital SVP Karan Taurani.