Analysis: Sony-Zee $10 bln media play may face changes, delays in India antitrust review

PVR INOX

02/09/2022 01:01

(Repeats from SEPT 1, no changes to text)
    * Sony-Zee merger's antitrust scrutiny triggers share fall
    * CCI says $10 bln TV giant to have huge bargaining power
    * Lawyers, ex-CCI officials say scrutiny will delay deal
    * Review could force firms to consider structural changes

    By Aditya Kalra, Aditi Shah and Abhirup Roy
    NEW DELHI, Sept 1 (Reuters) - A full-scale antitrust review
of plans to create a $10 billion media powerhouse in India by
Japan's Sony  6758.T  and Zee Entertainment  ZEE.NS  could force
concessions and prolong the process by months at a critical
moment for the Indian company.
    An initial Competition Commission of India (CCI) review has
flagged concerns, Reuters reported, arguing the group would have
"unparalleled bargaining power" with 92 channels coupled with
Sony's $86 billion in global revenues.  urn:newsml:reuters.com:*:nL4N30813S
    The CCI has called for further investigation, highlighting
the impact on competition due to the "strong" market position
the merged entity would have over advertising and channel
pricing, particularly in the popular Hindi language segment.
    Shares in Zee fell 6% during trade on Thursday, a day after
Reuters reported on CCI's assessment of the merger.
    Zee did not respond to questions for this article, but has
said it was continuing to take all required legal steps to
complete the CCI approval. 
    Sony did not respond to Reuters requests for comment.
    Ashok Chawla, a former CCI chairman, told Reuters that such
a review could lead to a detailed merger analysis involving an
examination of different broadcast offerings, delaying approval.
    Four antitrust lawyers told Reuters such a notice signalled
deep CCI worries and was likely to force Sony and Zee to rethink
their proposed structure, although none said it was likely to
lead to a collapse of the deal.
    Any potential delay, however, comes at a bad time for Zee, a
household TV name in India set up in 1992 by Subhash Chandra,
dubbed the "Father of Indian Television". 
    Zee's founders had to dilute their stake in the Indian
company to tackle their debt levels in 2019 and the Sony deal
was struck amid a 2021 boardroom conflict with an overseas
shareholder.
    For Sony, the merger will further its ambitions to tap more
digital, TV and regional language audiences in the fast-growing
Indian market of 1.4 billion people.
    The lawyers said Sony and Zee may have to offer a
"structural" remedy, which could involve selling some channels,
and "behavioural" remedies such as giving commitments that they
will not raise prices for advertisers for a certain period.
    "They may have to let go of some channels by selling ... to
third parties. This is CCI's preferred remedy to reduce threat
to competition," said Shweta Dubey, a partner at Indian law firm
SD Partners and a former official in the CCI's M&A division.
    "The whole approval process will be delayed significantly
now, and will depend on how palatable proposed changes are to
the CCI and how companies negotiate."
    
    REMEDY RISK
    The proposed remedies were likely to be "substantial", one
source with direct knowledge of the antitrust concerns over the
merger plan said, without elaborating.
    In CCI's 13-year history, 22 deals had to be modified to
gain approval. In 2015, for example, when Indian multiplex giant
PVR Ltd  PVRL.NS  sought to acquire a smaller rival's business,
the watchdog raised concerns, forcing it to commit to selling
some theatres and give assurances not to expand in some regions.
    The CCI has given Sony and Zee 30 days from Aug. 3 to
respond to its notice, but they are yet to submit their
responses, said a second source with direct knowledge of the
process.
    Analysts said the combined entity would reshape India's
media and entertainment landscape, heating up competition with
Netflix  NFLX.O , Amazon  AMZN.O  and Walt Disney  DIS.N  and
with Indian billionaire Mukesh Ambani's Viacom18 joint venture
with Paramount Global  PARA.O .
    Media companies are not just betting big on TV channels, but
also on their video streaming platforms and sports rights.
    Zee this week made another big move, entering into a
licensing deal with Disney to purchase some cricket TV rights,
which IIFL Securities estimates to be worth $1.5 billion.
    In a research note, the brokerage said these payments should
have been made partly by the fresh funds Sony planned to infuse
into the merged entity and flagged concerns over any antitrust
delay.
    "The biggest risk ... is the merger not going through and
Zee being saddled with high content costs," IIFL said.  

 (Reporting by Aditya Kalra, Aditi Shah and Abhirup Roy;
Additional reporting by Shilpa Jamkhandikar; Editing by Mike
Collett-White and Alexander Smith)
 ((aditya.kalra@tr.com; Twitter @adityakalra;))