The merger deal between Zee Entertainment Enterprises Limited (Zee) and Culver Max Entertainment Private Limited (Sony) was all over the news in early 2024. The said deal promised a synergy of content production, distribution, and broadcasting capabilities with a vision to create the largest television broadcaster in India, thereby attracting limelight due to its potential to reshape the Indian broadcasting sector in a fiercely competitive media and entertainment industry.

The monumental deal, first announced in 2021, had surpassed various hurdles in the past. After receiving approval from the Securities and Exchange Board of India (SEBI) and the National Company Law Tribunal (NCLT), Mumbai, the completion of the transaction was delayed until March 2022 due to concerns raised by the country’s anti-trust regulator, the Competition Commission of India (CCI). Further, the proposal that the merged entity would be run by Mr. Punit Goenka, Zee’s Chief Executive Officer and Managing Director, was much deliberated between the parties due to a disqualification order passed by SEBI in June 2023, barring Mr. Goenka from holding major managerial positions in the publicly traded companies until further notice, for allegedly siphoning off company funds. However, the Securities Appellate Tribunal dismissed the aforesaid SEBI order in October 2023 and cleared the way for the merger. The proposed synergy between both the companies raised hopes that Zee and Sony might finally enjoy the fruits of their union and challenge the dominance of Disney Star, which was also in the last leg of negotiations with Reliance Industries Limited to finalise their mega stock-and-cash merger to create India’s foremost media and entertainment powerhouse. What was ideally a win-win deal for both the companies, collapsed on January 22, 2024 when Sony pulled the plug on the merger, claiming that Zee had breached the terms of the Master Cooperation Agreement and demanded a termination fee of $90 million. The fallout of the merger led the parties to opt for legal routes, which involved the Singapore International Arbitration Centre (SIAC), NCLT and finally, NCLAT. The merger scheme eventually got terminated and the legal claims against the parties were withdrawn.

Looking at the history of mergers and acquisitions in the recent past, we may form an opinion that a significant number of mergers have failed due to the reason of not promising to deliver the anticipated benefits. For instance, the proposed merger between Reliance Industries Limited and Future Retail Limited crashed in April 2022, because of the rejection faced by the secured creditors of Future group, on the grounds that it was not viable any longer. As per the provisions of the Companies Act, 2013, it is mandatory to seek an approval in the meeting of creditors, from “majority of persons representing three-fourths in value”, for the scheme of arrangement, as sanctioned by the NCLT; and the said approval was not received per se. Further, Tata Steel Limited also decided not to pursue the amalgamation with its associated company, i.e., TRF Limited as the latter was witnessing a turnaround in its business performance. In 2017, FoodPanda’s food delivery business was acquired by Ola with a view to capture a significant share of the online food delivery market. However, due to the prevalent competition from Swiggy and Zomato and minimal sales by FoodPanda, Ola had to suspend the operations to mitigate further losses. Accordingly, it is crucial to choose the right time for mergers and acquisitions to align with the ongoing market trends and technological advancements.

On analysing the factors responsible for failure of mergers in today’s day and age, the most common reasons are listed below:

• Leadership challenges: Leadership plays a very important role in the success of a merger and it was even more crucial to cater to the challenges, which an employee/shareholder might face due to the intended merger by implementing a positive communication strategy, which can indeed minimize aversion and contribute to the success of the intended merger.

• Overestimation of synergies and lack of strategic alignment: Companies often overestimate synergies, leading to miscalculation of profits and anticipation of unrealistic efficiency. Further, the primary reason for merger failure is the lack of strategic alignment between the merging entities. This leads to conflicts, which ultimately undermines the success of the intended merger. It is pertinent to maintain brand synergies as well, so that the operations of the merged entities can be streamlined in order to create market presence.

• Short-term objectives: Companies sometimes pursue mergers for short-term gains without considering long-term implications. This results in post-merger challenges, as entities struggle with contrasting visions, making integration and strategic execution difficult.

• Other challenges: For going through with a merger, Companies are required to obtain a lot of regulatory approvals and deal with compliance issues. Failing to do so can lead to unwanted delays, fines, and legal disputes, thereby hampering the success of the merger. Further, unexpected industry changes or applicable laws can create hurdles, which were non-existent during the planning stage.

The Indian market has been rebuilt over the past couple of years, wherein the era of “bigger the better” has come to an end and instead, adapting to newer technologies or merging with tech-driven media companies could prove advantageous. While the merger deal between Zee and Sony was well timed (as the Indian television business is undergoing a significant transformation brought on by streaming video services and improved broadband connectivity), it hit a roadblock due to unresolved leadership disputes, regulatory setbacks, unmet financial conditions, valuation mismatch, and a complete breakdown in trust between the parties involved.