BENGALURU: Shares of India's Zee Entertainment sank nearly 14 per cent on Tuesday, a day after Bloomberg News reported that Japan's Sony was planning to scrap the US dollar 10 billion merger of its India unit with the broadcaster.
Sony plans to file a termination notice before the extended Jan. 20 deadline to close the merger over an impasse regarding who will lead the merged company, Bloomberg reported on Monday.
Zee CEO Punit Goenka is standing his ground on heading the entity while Sony no longer wants him as CEO amid a regulatory probe, Bloomberg reported.
Analysts say the deal is crucial to the companies' survival amid the looming merger of local heavyweight Reliance Industries' and Walt Disney's Indian media and entertainment businesses.
The combination of Sony with Zee, which has seen its profits dwindle and cash reserves shrink amid declining advertisement revenue, was also aimed at taking on streaming giants Netflix and Amazon.com.
"It would be surprising if the merger collapses as both companies will find it incredibly difficult to operate as single entities in India, keeping in mind the ongoing merger proceedings between Reliance and Disney," said Vivekanand Subbaraman, research analyst at brokerage Ambit Capital.
The merger was delayed after India's markets regulator last year barred Goenka from directorships of any listed company over allegations that he was involved in diverting company funds, although a tribunal lifted the ban in October.
Discussions were ongoing between the two sides and a resolution could still emerge, Bloomberg reported.
Zee declined to comment, while Sony did not respond to request for comment. Axis Finance, which had challenged the merger last year, did not immediately respond.
Shares of Zee were last down around 10 per cent and are on track for their worst day since April 2021, while Sony's stock was up 1 per cent.
"We do not foresee Sony agreeing on Goenka becoming CEO, due to the ongoing investigation against him. However, there is a very small chance of Goenka putting the deal at risk due to him wanting to become CEO, even if term sheet and deal conditions mention that," said Karan Taurani, an analyst at Elara Capital.
Zee shares soared after the merger was announced in 2021, but are now trading below pre-merger levels. - Reuters
