Zee to pursue legal action against Sony after merger termination

After Sony Group Co. issued a letter terminating the $10 billion merger with Zee Entertainment Enterprises (ZEEL), the latter has now announced its intention to pursue legal action against the Japanese company. It has also refuted all the "claims and assertions" made by Sony regarding alleged breaches on its part. It has also denied Sony’s claim to termination fees of USD 90 Million on account of the alleged breaches.

“ZEEL categorically denies all the assertions raised by Culver Max and Bangla Entertainment (BEPL) on the alleged breaches under the terms of the MCA, including their claims for the termination fee. The Board of Directors noted that all efforts and steps were taken by ZEEL in line with the Merger Cooperation Agreement, approved by its shareholders and all regulatory authorities. ZEEL has consistently worked towards the implementation of the mentioned scheme in the interest of the shareholders. ZEEL also held several deliberations and good faith negotiations with Culver Max and BEPL, with a view to consider an extension of the merger completion timeline, that did not materialise,” Zee said, in a press statement.

R. Gopalan, Chairman, ZEE Entertainment Enterprises Ltd. said, “The Board of Directors has taken note of Sony’s letters purporting to terminate the Merger Co-operation Agreement, on the Company’s proposed merger with and into Culver Max Entertainment Pvt. Ltd, invoking arbitration and seeking interim reliefs. We are evaluating the next steps and considering the appropriate course of action. The Board has noted that the Company took all the required steps in the course of its integration journey over the last two years, to ensure that the scheme is implemented at the earliest. That said, the Board would like to assure its stakeholders that the Company will take all the necessary actions, in the best interest of all stakeholders, including by taking appropriate legal action and contesting Culver Max and BEPL’s claims in the arbitration proceedings. The Board has complete faith in the highly experienced senior management of the Company and will continue to guide the team. We recognize and value the trust our shareholders and stakeholders place in us, and we express gratitude for their continued support.”

The Merger Co-operation Agreement (MCA) between Zee, Culver Max and BEPL was signed on December 21, 2021 with a deadline to complete the merger by December 21, 2023. However, the two parties met a stalemate after they could not decide on who would head the merged company. While  Punit Goenka, MD & CEO of ZEEL, was the initial choice, Sony disagreed on it after Goenka was banned by SEBI from holding any directorial positions. 

The MCA also allowed the two parties a grace period of 30 days. ZEEL exercised this right to require Culver Max and BEPL to enter into good faith negotiations to arrive at a mutual agreement on the extension of the end date. 

The press statement mentions that Goenka was agreeable to step down in the interest of the merger and proposals in this regard were discussed, including for appointment of a director on the Board of the merged company, protections for conduct of pending investigations and legal proceeedings in the best interest of ZEEL’s directors and shareholders and the consequent modifications to the scheme to incorporate the same. 

“During this period, despite conducting numerous deliberations in good faith, the parties failed to arrive at a consensus on the purported pending conditions precedent that required action on the part of both ZEEL and Culver Max, BEPL under the terms of the MCA. ZEEL proposed an extension of a maximum period of six months for consummation of the transaction, however, Culver Max did not provide any counter proposal for extension. These discussions did not result in any proposal from Sony but they rather have chosen to terminate,” it states.