Sony has raised an arbitration demand against Zee with the Singapore International Arbitration Centre for breach of the merger contract involving its India unit and Zee Entertainment Enterprises Ltd. Zee is likely to contest Sony’s claims and is also expected to demand $90 million termination fee from Sony. It will also very likely file counter-claims in Sigapore on the “irreversible” steps taken by it towards the merger.
It may be recalled that Sony called off the merger deal on January 22 as, according to it, Zee failed to fulfil the conditions of the merger pact and also insisted on having Punit Goenka lead the merged entity. Although the merger agreement provided for Goenka heading the new company, Sony changed its stand after Punit Goenka came under the SEBI scanner for financial irregularities in Zee. Sony viewed this as a corporate governance issue. Sony may also have been concerned about the financials, related-party dues and the legal cases it would inherit from Zee after the merger. Zee is facing legal proceedings by various creditors of its promoter group, including Axis Finance and IDBI. There is also a possibility of a legal suit if Zee fails to pay Disney for broadcasting rights for some cricket matches.
Meanwhile, Zee undertook several “permanent and irreversible” steps like divesting its “profit-making” businesses in Russia, Germany and Thailand, in connection with the merger. These steps resulted in one-time recurring costs for Zee which is, therefore, likely to make a counter-demand for exiting businesses and incurring costs to adhere to the merger requirements. The company claims to have spent Rs. 367 crore on merger-related expenses.