Sony- Zee clash over Russia assets, cricket deal before India deal failure: Report

Sony and Zee found themselves at odds over more than 20 compliance issues, including the Indian company's unresolved disposal of certain Russian assets and its $1.4 billion Disney cricket rights deal, before the fallout of Sony Pictures Network and Zee Entertainment Enterprises merger in India. This disagreement unfolded in internal emails reviewed by Reuters.

According to a Reuters report, the back-and-forth conversations between Sony's legal and M&A executives in India and Los Angeles and high-ranking Zee executives provided insights into the high-stakes backroom tussle that led to Sony's decision to abandon the $10 billion merger on January 22.

Emails sent between December 20 and January 9 reveal executives from both companies pointing fingers at each other for not upholding the merger commitments. Zee executives consistently said that everything was in order and requested Sony to extend the closure deadline.

Further, Drew Shearer, a senior Sony executive based in Los Angeles, expressed in an email, "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."

Emails reveal a standoff between Sony and Zee regarding four Russian subsidiaries engaged in content creation and distribution, which violated the merger agreement's prohibition on dealings with entities based in countries under U.S. sanctions, such as Russia amidst the Ukraine conflict.

In an email on January 5, Erik Moreno, executive vice president, corporate development and M&A, Sony Pictures Entertainment, emphasised the criticality of Zee severing ties with the Russian entities, stating that the merged entity would not inherit them under any circumstances.

Zee's legal representative, Shyamala Venkatachalam, responded by explaining that the divestment process had stalled due to evolving regulations in Russia, clarifying that despite the entities' business being shut down in December 2022, alternative structures were being explored.

Regarding Zee's 2022 decision to engage in a $1.4 billion deal with Disney for TV cricket rights in India, new insights emerge from emails. In the January 5 email, Moreno expressed that Sony had previously "raised our concerns and reservations in relation to the (Disney) alliance agreement ... including, in respect of the consideration agreed to be paid."

In response, a Zee legal executive asserted that Sony's allegations were untimely and characterised them as "reprehensible and unfortunate." The emails argued that the cricket deal did not violate any merger conditions, as both parties aimed to support Zee's expansion into sports.

Zee finally opted to end its cricket deal with Disney due to financial constraints. In addition to the termination of the Disney deal, emails reveal that Sony accused Zee of multiple breaches of the merger agreement, such as initiating a new channel in South Africa during negotiations and providing a $3.3 million loan to an affiliate in India without specifying a repayment term.

Zee contended that none of these actions violated the terms of the deal, with Venkatachalam stating in an email, "We have borne great costs to ensure a successful merger between our companies."