Zee Sony merger plan runs into CCI roadblock

It looked like the media merger of the decade as Zee and Sony announced their grand plan to merge their businesses into a $10 billion media conglomerate. However, the first spoke in the wheel to the merger deal has come from the Competition Commission of India (CCI). The anti-trust watchdog has objected to the proposed merger between Zee and Sony due to the unparalleled bargaining power that it would give to the merged entity. CCI feels that such industry dominance by one business house could negatively impact competition.

In its notice issued to both the companies; Zee and Sony, the CCI has clearly stated its view that further investigation is merited in the case. In other words, the CCI would be looking at multiple data points and talking to more stakeholders to understand if such a move would have the impact of stifling competition. The merger had come as a virtual lifeline to the beleaguered Zee group as the Subhash Chandra family faced strident opposition from key investors. The merger would have allowed Zee to take on the threat of OTT too. 

For the two companies, the CCI notice comes as a regulatory roadblock. It remains to be seen as to what is the final call taken by the CCI, but it is likely to certainly delay the process. One possibility is that the CCI may force the two companies to propose changes to its structure or to the specific clauses of the merger which engender such domination. If the CCI is not satisfied with that, then it could result in a prolonged approval and investigation process. It may defeat the basic idea of speed, which is the essence of such transactions.

One of the contentions of CCI is that the combined entity will control close to 92 channels. Also, Sony is a global powerhouse with revenues of $86 billion worldwide and that kind of a balance sheet would give the merged entity an unfair advantage. CCI fears that such dominance could lead to a spike in the price of channel packages, as the two groups control large chunks of the entertainment and sports properties in India. The gist of the CCI notice is that the deal, if permitted, would cause an “appreciable adverse effect on competition”. 

Zee and Sony have been given a time period of 30 days to respond to the notice by CCI. For Zee, it is not just the cash crunch that had made the merger inevitable, but even the promoter group needed this deal desperately to improve their effective post-merger shareholding and to strengthen their position. Subhash Chandra family had to sell most of their shareholdings in Zee to bail out some of its group infrastructure investments resulting in a sharp fall in the family’s stake. The essence for Zee is speed of completion of merger.