Zee Entertainment may file a suit against Sony claiming damages if the merger fails to go through by January 20.
Sources told businessline that Zee had to shut down certain profitable businesses to comply with merger conditions set by the Competition Commission of India. “In order to get a nod from CCI for the merger, both Zee and Sony had to comply with certain voluntary structural remedies proposed by the regulator. This targeted Zee in particular since it had to divest three Hindi channels, namely Big Magic, Zee Action and Zee Classic. If the merger fails to go through, this is a loss for Zee,” said a person aware of the developments.
While the original agreement between Zee and Sony had envisaged $100 million in penalties if either side walked away from the deal, this facility expired on December 21. The two parties had agreed to extend the talks by 30 days and have been trying to cobble up a deal ahead of the January 20 deadline. But now, Sony is not obliged to pay the penalty if it chooses to dissolve the agreement.
Goenka’s role
Both sides are unwilling to relent on the question of Punit Goenka’s future in the merged entity.
Sony does not want Goenka in any executive position in the merged firm because of the ongoing investigation against him by the Securities and Exchanges Board of India. But Goenka continuing on as the MD and CEO of the merged entity was a key provision for the merger, according to Zee.
Sources have also told businessline that Sony has also not offered any monetary compensation to Goenka, an increased non-compete fee, for instance, to walk away from the merged entity.
Legal quagmire
Karan Tuarani from Elara Capital said a suit by Zee may not have much impact on Sony. “The three channels were relatively small channels for Zee. Even if the suit goes through it will be an ineffective threat for Sony.”
However, experts also concur that such a suit by Zee sets up Sony for the tedium of another suit, in a merger process that has already been extremely litigious.
“Zee’s case will have legal merit if it can prove that Sony breached their agreement and that Zee suffered damages as a result of that breach,” Abhishek Malhotra, former Managing Partner at TMT Law Practice said.
Market watchers said they expect the potential legal battle with Sony to go the way Goenka fought Invesco, a US-based investor which at one point was the largest shareholder in Zee. Invesco wanted to oust Goenka and merge Zee with Reliance instead of Sony. The dispute snowballed into a major legal wrangle but eventually Invesco sold out all its Zee stake in the open market last year giving Goenka a moral victory in that fight.