Sony's Termination Of Merger Sparks Legal Questions For Zee
In connection with the terminated merger agreement, there is a provision stating that if either party decides to break away from the merger, they would be required to pay a fee of $100 million.
Sony Pictures Networks India, now Culver Max Entertainment Ltd., has officially terminated the agreement with Zee Entertainment Enterprises Ltd. due to the merger not closing by the specified end date.
Zee Entertainment, which received termination notices seeking a $90 million termination fee for alleged breaches, denied all assertions and now faces legal consideration.
What legal remedies are available and what steps might follow? Let's explore the unfolding legal landscape.
The $100 Million Break-Away Fee
As reported earlier in connection with the terminated merger agreement, there is a provision stating that if either party decides to break away from the merger, they would be required to pay a fee of $100 million. This condition is part of the terms outlined in the initial merger agreement.
Both parties in this situation are saying the deal fell through because of the other's mistake. If they can't settle it amicably, they might end up going to court to resolve their issues as per the agreement, said Manmeet Kaur, a partner at Karanjawala & Co.
Accordingly, this $100 million fee may also become a contentious point between Zee and Sony, she said.
Extension-Related Provision
The decision to terminate is based on certain conditions that were not fulfilled before the proposed merger. According to the agreement, the merger was supposed to happen within 24 months, with an option for extension through mutual agreement.
Sony claims they discussed extending the timeline with Zee in good faith, but an agreement wasn't reached within the designated discussion period. Consequently, Sony sent a notice terminating the merger.
According to Anindya Ghosh, a partner at IndusLaw, based on the extension-related provision outlined in the definitive agreement, publicly available information suggests that Sony is fully entitled to terminate the proposed merger.
Hence, if Zee intends to contest this termination in court, it has to establish that Sony did not follow the procedure set out in the definitive agreement in relation to the termination, Ghosh said.
Loss Of Reputation
Zee has already expressed its readiness to pursue legal action to safeguard stakeholder interests. Another potential avenue for seeking remedy could involve claiming damages for reputational loss, according to Rajiv Sharma, a partner at Singhania and Co.
Meanwhile, the determination of the party at fault could be the subject matter of the arbitration proceedings that Sony has invoked against Zee, Sharma said.
Bir Bahadur Sachar, partner at JSA Advocates and Solicitors, concurred and said that whether the termination is valid will be determined by the arbitrators.
What Lies Ahead For Zee?
Irrespective of any legal action, both companies are now required to conduct their business independently by evaluating growth opportunities, said Nikhil Varma, managing partner at MVAC Advocates and Consultants.
Zee has hinted, through its press release, that it will explore alternative avenues for growth.
Even though Sony appears to have pressed for some interim relief as well, it seems unlikely that there will be any material restrictions on Zee’s business at this point in time, Sachar said.
Additionally, as per Ghosh, the companies should ensure that all confidential information shared by each party in the process of merger is kept privileged and confidential.
The respective disclosing party should ensure that the recipient returns all such confidential information to such disclosing party, he said.
