What is this $100 million that is payable in the Zee Sony merger and will Zee have to pay that to Sony?

This is a exit penalty clause and will apply to both the parties to the deal viz. Sony Pictures and Zee Entertainment. Like most mega mergers, the $7 billion merger between Zee and Sony has also inserted an exit penalty clause in the merger contract. This penalty will be payable by whichever party decides to exit the deal after the approvals are through. The idea of such a clause is to bind the two parties to a long term arrangement.

The existence of an exit penalty in the merger agreement was confirmed even by Vikas Somani, who heads mergers and acquisitions at Zee. However, Vikas had only confirmed the existence of the exit penalty clause, but had not mentioned anything about the quantum of penalty involved. According to informed sources on the deal, the exit penalty could be in the vicinity of $100 million which translates into Rs.750 crore approximately.

What needs to be remembered is that the penalty clause will kick in only after regulatory and shareholder approvals. It is not applicable if the deal is not able to clear shareholders or the regulators. Zee is yet to confirm on shareholders meet to pass the deal. The approvals have to be taken from NCLT, SEBI, the stock exchanges, apart from the CCI. Being media companies, approval from Ministry of Information and Broadcasting is also mandatory.

It is still not clear if Invesco will vote for or against the deal. With a shareholding of 17.88%, Invesco is the largest shareholder in Zee. When Invesco had demanded an EGM to replace Punit Goenka, Zee had refused to accede to that call. In the final analysis, the buy-in of the other institutional shareholders will be the key to see the merger through. Once merger is approved, the exit clause of $100 million could be a deterrent for any future rethink.