Jan. 22, BENGALURU (Reuters) - The $10 billion merger between Sony Group of Japan and Zee Entertainment, which was supposed to form one of South Asia's largest TV broadcasters, was canceled on Monday.

The deal's collapse in content-hungry India raises fresh questions for TV broadcaster Zee in particular as competition intensifies and Disney opens a new tab aiming to combine its Indian operations with the media holdings of Reliance, the billionaire Mukesh Ambani's company.

Zee informed Indian stock exchanges that Sony was "invoking arbitration" to obtain emergency interim relief and termination fees of $90 million for purported breaches of their merger agreement. Zee indicated that it would take the proper legal action and refutes all of Sony's allegations.

In a statement, Sony said that despite "good faith discussions" with Zee, some "closing conditions" to the merger were not achieved and that the firms had not been able to reach an agreement on an extension by their deadline of January 21.

"After almost two years of discussions, we are really let down... It said, "We are still dedicated to expanding our footprint in this dynamic and quickly expanding sector.

Sony and Zee did not provide further details on Monday on the unfulfilled conditions; however, the merger was in jeopardy due to an impasse over the leadership of the combined firm.

Zee had suggested that CEO Punit Goenka take over, but Sony objected after learning that he was being looked into by the market watchdog in India. Goenka had been "willing to step down in the interest of the merger," according to Zee on Monday.

However, a person with firsthand knowledge of the matter stated that Sony was unwilling to move further unless Goenka withdrew his support before to the merger's closing, as opposed to after it had been finalized, as he had suggested.

'A CALLS FROM GOD'

Goenka was barred from holding directorships by the Securities and Exchange Board of India last year after the board claimed he had misappropriated money from Zee. In October, the prohibition was removed, provided that the person cooperated with any inquiry. Goenka, who is in Ayodhya for the opening of a temple, interprets the failed Sony deal as a sign from God and intends to fortify his business.

 Zee is facing difficulties due to dwindling ad revenue and decreased financial reserves, which are now at 2.48 billion rupees as opposed to 5.88 billion rupees a year ago. Zee will look into growth opportunities despite the expenditures associated with the Sony transaction.

Zee, a well-known brand in Indian television since 1992, let investors down by not successfully merging with Sony. Creating a portfolio of more than 90 channels was the goal of the proposed merger. Sony had not included the deal into its outlook, and its estimates remained untouched. Ever since the deal was announced in September 2021, Zee shares have decreased by roughly 8%.