Following termination of its merger with Sony, Zee is at a crucial juncture, grappling with potential legal action and looming threat of reputational damage.
One of the first fallouts of a failed M&A (merger and acquisition) deal is the crash in its stock price and the reputational vulnerability in the open market, said experts.
“Its share is expected to see a major drop leading to substantial loss in the company’s valuation. Sony on the other hand seems to be in a much stronger position since it has a worldwide presence. The ultimate beneficiaries, though, are expected to be other players in the entertainment industry who can capitalize on the dispute, expanding their portfolios,” said Yatharth Rohila, partner at Aeddhaas Legal.
Since Zee failed to adhere to the agreed terms and conditions, prompting Sony to serve a termination notice, some experts also said that it may impact Zee’s ability to pursue legal action against the Japanese company.
Read More: Zee-Sony Merger End: Zee to take legal action after Sony’s merger termination notice
However, Sony has taken preemptive measures by initiating arbitration and seeking interim reliefs, creating an avenue for Zee to assert its claims in the ongoing proceedings,” Rohila added.
According to Rohila, this termination will have a major impact on Zee Entertainment as its promoter is already embroiled in investigative proceedings by SEBI.
As per legal experts specialising in mergers and acquisitions, it is standard for deals to have the likelihood to fall in the period between signing definitive agreements and then closing the deal. But who bears the loss for this breakdown, or whether it is evenly distributed, depends on which side is protected by fee related clauses in the deal documents for this eventuality.
While the stalemate over the Zee Sony merger is finally over as Sony has issued the termination notice thereby officially calling off the merger, stakeholders are worried about the lost opportunities that could have emerged from the $10 billion merger.
“The merger would have been beneficial not only for the two entities but for the Indian media landscape as well. However, now it will be interesting to see how the two companies cope up with the ever-increasing competition, especially if the Reliance-Disney deal goes through,” said Suhael Buttan, counsel at SKV Law Offices.
Pursuant to Sony’s decision to call off the merger between Sony and Zee, now the big question is whether Zee can take any legal action against Sony?
“Neither the long courtship period, nor an engagement to marry is enforceable by either party to marry. However, the expenses incurred during such engagement or damages towards the loss of reputation can be claimed, provided the claimant comes up with clean hands,” said corporate law expert and partner at law firm Singhania & Co, Rajiv Sharma.
The repudiation of proposed merger as well as its consequences, are governed by the initial agreement(s) between the parties. Now, what made Sony call off the merger is an important factor, also determination of the party at fault, are some of the issues which could be subject matter of the dispute to be settled by arbitration proceedings.
“In our view, it is better for Zee to peacefully accept the termination notice sent by Sony and the resultant failure of the merger, rather than causing any further dent on their reputation,” Sharma added.
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