Sony Group Corp is on the verge of terminating its proposed $10 billion merger with Zee Entertainment Enterprises Ltd (ZEEL) due to ZEEL's alleged inability to fulfil conditions laid down in the merger agreement, according to sources.

Sony is reportedly planning to send a termination notice to Zee by the end of the month, potentially as early as January 22nd, unless Zee addresses key clauses.

The discontent between the companies includes disagreements over ZEEL MD Punit Goenka serving as the CEO of the merged entity, given ongoing charges of siphoning off funds.

Sources indicate that discussions are ongoing between the two sides and their legal representatives to find a resolution.

Meetings between Zee's legal team at Trilegal and Sony's legal representatives at Shardul Amarchand Mangaldas have been ongoing since Zee informed stock exchanges on December 20th about entering a good faith agreement with Sony.

This agreement, under the Merger Cooperation Agreement (MCA) signed in December 2021, allows the parties to discuss extending the date required to make the merger scheme effective.

Despite ongoing discussions, repeated extensions may not be viable for Sony, given Zee's poor financial state.

Sony Global sources suggest that poor financials of Zee could trigger a "material adverse effects" clause, as the merger agreement had set limits for Zee's financial performance.

Since the merger announcement, Zee's EBITDA has declined from Rs 1606 crore in March 2021 to Rs 1107 crore in March 2023, and net profit has dropped from Rs 793 crore to Rs 48 crore in the same period.

While Zee declined to comment, Sony Global's spokesperson did not respond to inquiries.

The appointment of Punit Goenka as MD and CEO has also become a significant hurdle in the merger, with Sony recommending its India MD and CEO NP Singh for the role.

Sebi's bans on Goenka and his father Subhas Chandra from holding key posts in listed companies have further complicated matters. Sony is reportedly seeking Goenka's voluntary resignation, with Zee insisting on the implementation of the original composite scheme or obtaining fresh shareholder approvals.

The trust deficit between the two entities has widened, creating uncertainties about the future of the proposed merger.