Zee shares plummet 10% on buzz of Sony calling off $10 billion merger

Shares of Zee Entertainment Enterprises Ltd (ZEEL) witnessed a significant decline of up to 10%, reaching a day’s low at Rs 249.75 on the Bombay Stock Exchange (BSE). This drop came in response to reports suggesting that Sony Group Corp is considering calling off the $10 billion merger, which has been under discussion for over two years.
At 11:32 AM, shares of Zee Entertainment Enterprises Ltd were trading at Rs 254.60, down Rs 22.85 or 8.24%.
The primary reason behind Sony’s potential decision to terminate the deal is believed to be the regulatory hurdles faced by Zee Entertainment’s Managing Director, Punit Goenka. The merger, if successful, would have resulted in the creation of a $10 billion entity. Sony is likely to send an official termination notice to Zee by the end of this month, possibly as early as January 22nd, an ET report said.
Market experts express concerns regarding the breakdown of the merger, as both Sony and Zee have reported below-average growth in the past year. Emkay Global has stated that the failure of the merger will be detrimental to both parties, especially in the face of competition from the much larger entity of Reliance-Disney (if their merger goes through). Both parties will potentially need to reassess their strategies from scratch, which could be challenging, Emkay has said.
Zee Entertainment’s proposed merger with Sony Group has encountered numerous obstacles since its announcement in December 2021. The deal faced initial disagreement from its largest public shareholder, Invesco, followed by insolvency proceedings against the Essel group.

Despite overcoming these obstacles and securing all necessary approvals, the merger’s conclusion was hindered by a directive from the Securities and Exchange Board of India (SEBI) last year. The directive prohibited Punit Goenka from holding any executive or directorial positions, which posed a challenge to his anticipated role as the head of the merged entity.

However, in October of last year, the Securities and Appellate Tribunal overturned SEBI’s order against Goenka, offering a ray of hope to investors. Market expectations were that the deal would be finalized by the stipulated deadline of December 21, 2023. Nevertheless, Zee requested an extension from Sony to address critical issues, including the matter of Goenka leading the merged entity.
Bloomberg reports indicate that Sony is no longer comfortable with Goenka assuming the leadership role amid the ongoing regulatory probe.