Sony Group thought it had a strong script to woo audiences in the world’s most-populous nation, but the merger that was going to make it the leader of India’s television entertainment market was doomed from the start. By pursuing it for almost two years, the Japanese company has become an unwitting actor in a farce. It should cut its losses and walk.
The Securities and Exchange Board of India alleged last week that Zee Entertainment Enterprises Ltd., the Mumbai-based media house Sony wants to combine with, had faked the recovery of loans owed by its founder Subhash Chandra’s private entities. He and his son Punit Goenka had siphoned off funds “for their own benefit,” the SEBI said, barring them from executive or directorial positions in listed firms. Chandra and Goenka, Zee’s chief executive, have appealed the order on the grounds that the regulator didn’t hear their side of the story. The SEBI has doubled down by filing a 197-page reply.
The legal drama creates a fresh problem for Sony. Although it was supposed to control the larger empire, and infuse an additional $1.4 billion of cash, Goenka was to run the show. This is how Chandra, the 72-year-old Indian media mogul, had structured the 2021 transaction so as to retain some sway over Zee, India’s oldest non-state television network.
Chandra had come to that sorry pass because of his wrong-way leveraged bets in unrelated industries like infrastructure, an error he acknowledged in early 2019. But a plan to repay the debt by selling half of the family’s stake in Zee to a strategic partner failed to kick off. Two years later, a large US investor began a campaign to oust his son as director. At the time, Sony, which competes with Zee in offering a similar fare of Bollywood-style entertainment and sports, was kind to come to the rescue of its rival. Not only was it agreeable to letting Goenka continue as CEO, Sony was also giving the family an option to raise its near-depleted stake to 20 persent and throw in extra shares as a non-compete fee.
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