Sony’s decision to call off the merger with Zee after two years of going through the process is based on an ‘informal proposal’ and the negotiations around it, sources with direct knowledge told CNBC-TV18 on January 23.
Deal makers involved told CNBC-TV18 that Sony conveyed the change in Punit Goenka's position "verbally" amid an investigation by the Securities and Exchange Board of India (SEBI). In response, Zee presented two proposals to align with Sony's informal proposition on the critical change in the terms of the deal.
The first suggested retaining the original merger format and jointly seeking an independent CEO, while the second proposed Punit Goenka stepping down but maintaining a board position. Sony declined the latter, leading Zee to revise it by suggesting the appointment of a nominee board member.
To protect the interests of the 49% of shareholders who had entrusted Punit Goenka with the MD and CEO position in the merged company, Zee sought a nominee board position. Sources reveal that despite presenting various alternatives, Sony rejected them all, leading to the decision to call off the deal.
Legal experts, familiar with the deal contours, noted that the informal approach to changing the clause was a ‘commercial decision’ to avoid reopening the deal for renegotiation, which would require compensation to the merger partner for the proposed changes.
An M&A lawyer said, “The original agreement did not incorporate a safety net or optionality in case of any eventuality of an unforeseen risk to the clause pertaining Punit Goenka’s position and this was an opportunity Sony probably exploited.”
Sony and Zee have not offered any comment to CNBC-TV18 on the above details and developments that led to the failure of the merger.
Also Read | Here is a complete timeline of how the $10 billion Zee-Sony merger deal started and ended
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