Behind the Scenes: The Sony-Zee Merger Collapse Unveiled through Internal Emails

The collapse of the much-anticipated $10 billion merger between Sony and Zee has unveiled a dramatic back-and-forth between the companies, shedding light on more than 20 compliance issues that contributed to the breakdown. Internal emails exchanged between Sony’s legal and M&A executives in India and Los Angeles and top Zee executives provide insight into the contentious discussions that preceded Sony’s decision to abandon the merger.

The communications, spanning from December 20 to January 9, reveal a series of accusations and disagreements over adherence to merger commitments. Executives from both Sony and Zee accused each other of not honoring the agreed-upon terms, creating a tense atmosphere as the merger deadline approached.

Sony’s legal executive, Drew Shearer, highlighted events and circumstances that had a potential “material adverse effect” on the business, prompting concerns about the merger’s viability. Zee’s top India counsel, Shyamala Venkatachalam, responded, accusing Sony of attempting to portray a narrative with no basis in facts and expressing dismay at what Zee considered a sudden change in Sony’s position.

The Zee-Sony merger, in development for two years, aimed to create a formidable Indian TV powerhouse with over 90 channels across sports, entertainment, and news, rivaling major players like Walt Disney and Mukesh Ambani’s Reliance. However, the breakdown of the deal has been a more significant setback for Zee, leading to a 27% decline in its shares since the merger’s cancellation.

The internal emails reveal a face-off between Sony and Zee regarding compliance issues related to Russian assets and Zee’s $1.4 billion cricket rights deal with Disney. The merger agreement prohibited dealings with entities in countries under U.S. sanctions, and concerns arose over Zee’s ties with four Russian subsidiaries involved in content creation and distribution. Zee’s response indicated that the divestment process had not been completed due to changing regulations in Russia.

Another contentious point was Zee’s decision to enter a $1.4 billion deal with Disney for certain TV cricket rights. Sony raised concerns about financial terms and Zee’s decision to secure a bank guarantee and a deposit totaling $406 million without prior consent. Zee argued that the cricket deal did not violate merger conditions and was intended to support its expansion into sports.

The emails also revealed Sony’s accusations of other breaches, including launching a new channel in South Africa and granting a $3.3 million loan to an affiliate without specifying repayment terms. Zee defended its actions, asserting that they did not violate the terms of the merger agreement.

The unfolding drama and the breakdown of the Sony-Zee merger have left investors in the dark, with calls for transparency from proxy advisory firms like InGovern. The details from the internal emails provide a glimpse into the complex negotiations, compliance challenges, and conflicting interests that led to the ultimate collapse of the merger.