Rs 80,000 Crore Merger Between Zee and Sony Can Hurt Competition, As Per CCI | Merger Looks Tough?

According to an official notice by the country’s antitrust watchdog, the $10 billion TV enterprise after the merger of the Indian unit of Japan’s Sony (6758.T) and Zee Entertainment (ZEE.NS) can potentially hurt competition due to the “unparalleled bargaining power” that they will have. 

CCI’s Vigil on the Merger

The notice of August 3 by the Competition Commission of India(CCI) stated that the watchdog is of the view that a further investigation is merited.

Following the same, the shares of Zee fell nearly 5% in morning trade on Thursday. 

In the month of December, the seeds of the merger were sown by Sony and Zee wherein they decided to merge their television channels, film assets and streaming platforms to create a powerhouse in a key media and entertainment growth market of 1.4 billion people and lock horns with other big names like Walt Disney.

Three Indian lawyers familiar with the process said that the findings of the CCI will not only delay regulatory approval of the deal but also could make the company change their structure. They also stated that if the details of the deal still fails to satisfy the CCI, it could lead to a prolonged approval and investigation process. 

In a statement, Zee said that in order to complete all the necessary approval processes for the proposed merger, it is taking all the required legal steps. 

However representatives from Sony as well as CCI did not comment anything.

As per the 21-page notice by CCI, the proposed deal would place the combined entity in a “strong position” with around 92 channels in India, also citing Sony’s global revenue of $86 billion and assets of $211 billion. According to CCI “Such apparently humongous market position would enable the combined entity to enjoy an un-paralleled bargaining power”.

It gave the two companies 30 days from Aug. 3 to respond.

As per CCI the deal is likely to cause an “appreciable adverse effect on competition. Thus, it is considered appropriate to conduct further inquiry into the matter.”

MD of Zee, Punit Goenka said that he sees the relative value of the combined entity as “potentially close to $10 billion” and expected all necessary approvals by October this year.

Classic Merger Case

As per the Industry experts, this merger will enable the two companies to attract more advertising revenue from streaming services and TV broadcasts, competing with Disney whose Star India network has dozens of popular entertainment and sports channels.

After the preliminary CCI competition assessment, CCI said that the merged entity will go on to have 45% of the Hindi language segment, which draws the largest audience in the country, with Star a “distant second”.

In the notice, CCI also mentioned that such a merger would lead to concentration of such segments at the expense of competition.

After inquiring about the deal, CCI issued the two so-called “defect” letters which were responded by Sony and Zee.

As per the CCI analysis of submissions related to advertising revenue, they said that the price of some advertisements would increase as the merge entity was likely to use its strong market position.

CCI said that “The combined strength of the parties is likely to be used to entrench their presence and earn higher profits”.

“This merger is a classic case of the first or second largest player, integrating with the third largest competitors, to become the strong market leader.”