NEW DELHI - A full-scale antitrust review of plans to create a $10 billion media powerhouse in India by Japan's Sony and Zee Entertainment 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.
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."
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 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, Amazon and Walt Disney and with Indian billionaire Mukesh Ambani's Viacom18 joint venture with Paramount Global.
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)