The excitement around the biggest merger in the history of the media and entertainment sector, which will change the broadcast landscape in the country, is building up. With the latest developments suggesting that Reliance and Disney India are all set to become one entity by February 2024, eyebrows are raised on whether such a big merger can come through within such a short span of time, considering that it usually takes several months to sometimes even years for such deals to see the light of day.

With the other mega merger between Zee and Sony going through a testing phase as it still awaits its fate due to several legal hiccups and leadership issues, it will be interesting to see how soon the Mukesh Ambani-owned Reliance acquires Walt Disney’s India arm.

In a major step towards the merger, the two media giants have signed a non-binding pact wherein Reliance will have 51% shareholding and Disney will have 49%. Speculations are rife that both the entities will together invest around $ 1.5 billion into the deal, under which Ambani's firm will gain distribution control of Star India's channels.

According to the insiders, the valuation and due diligence could commence anytime with regulatory approvals to be completed by February 2024.

Let’s dive deep into the various aspects of the merger.

How much time does it usually take for such big media mergers?

The duration for completing big media mergers can vary widely depending on the specific circumstances, regulatory requirements and the complexity of the deal.

In many cases, such mergers involve extensive regulatory scrutiny, including antitrust reviews, which can significantly extend the timeline, said legal experts, adding that the statutory process for mergers, as envisaged under the Companies Act, 2013, usually takes about six months on an average.

“The process of merger involves majorly the consensus of terms of the merger, due diligence, approvals/ consents from the NCLT, various authorities and stakeholders involved with the party and other third parties towards whom the parties are contractually obligated. This is in addition to the internal regulatory requirements which are prescribed by the Companies Act,” said advocate Diviay Chadha, Partner at Singhania & Co.

“Usually, the whole process can range from anything between eight months to one year, depending upon the terms of arrangement between the parties,” he said.

“On an average, the process can take several months to over a year or more to receive all necessary approvals and finalize the merger. It's not uncommon for large media mergers to face regulatory challenges and negotiations that contribute to the overall time frame. Therefore, providing a precise time frame without specific details about the merger in question is challenging,” said Nikhil Varma, Managing Partner, MVAC Advocates & Consultants.

What is a non-binding agreement? What ramifications does it have?

A non-binding agreement, as the name suggests, is an agreement which the parties are not legally obligated to perform and primarily sets out the understanding or the principal intentions of the parties.

“It’s more of a memorandum of understanding. A non-binding agreement usually marks the starting point of a deal which is followed by the due diligence process and fulfilment of certain conditions precedents like obtaining regulatory approvals,” said Shashank Agarwal, Advocate, Delhi High Court.

According to industry sources, non-binding contracts prove beneficial in situations where the aim is to outline specific terms for a particular arrangement, yet uncertainties linger.

Advocate Soayib Qureshi, Partner, PSL Advocates and Solicitors, said that such an agreement is the best option if the negotiation process is just beginning.

“The specifics of the transaction will determine whether the type of contract required is binding or not. A binding contract is the best choice if one is entering into an agreement where both parties must be required by law to carry out their duties. Nonetheless, a non-binding contract might be the best option if the negotiation process is just starting and the parties want to lay out the details before making a commitment,” Qureshi said.

?What regulatory approvals are required in the merger process?

In a merger process, usually, some of the approvals which need to be obtained, include those from the Income Tax Department under the Income Tax Act, 1961; from the Registrar of Companies/the ?Regional Director under the Companies Act, 2013; from the Competition Commission of India (CCI) under the Competition Act, 2002, etc.

The final seal of approval of a merger scheme comes from the National Company Law Tribunal under the Companies Act, 2013.

According to Qureshi, regulatory approvals for such mergers depend on the industry in which the target operates, the nature of the acquisition, whether the acquirer is a non-resident; and whether the target is listed or unlisted.

“The SEBI, RBI, NCLT, and CCI are the main agencies in India that oversee mergers and acquisitions. SEBI is the regulatory body for securities laws in India. Certain types of transactions involving listed businesses, like mandated tender offers, buybacks, and delisting, need adherence to SEBI regulations. As the country's central bank, the RBI controls foreign investment in India.

“Foreign investments in India are subject to the mandated price criteria set forth by the Reserve Bank of India (RBI), and in certain cases, RBI permission may be required. Schemes of arrangement are governed by the NCLT, and competition in India is overseen by the CCI,” said Qureshi.

Industry sources said that the most important scrutiny for the merger would be their OTT businesses, which also involves the power on advertising during the cricket season as it will bring a massive change in the experience of viewing sports in India.

Will the merger really come through in two months?

Legal experts feel that it looks difficult for the merger to be completed in two months as the media giants have entered only a non-binding agreement so far.

“This timeline of two months is quite a short timeline. However, considering that the parties have only signed a ‘Non-Binding Agreement’, it is assumed the merger process under the Companies Act, 2013, is yet to follow,” said Agarwal.

The timeline does appear notably short for a substantial merger, was the unanimous view of industry sources, who also said that achieving a merger of this scale within two months is typically challenging, considering the complexities involved in obtaining approvals, conducting due diligence, and navigating various regulatory processes.

“However, the feasibility depends on the specific circumstances, regulatory environment, and efficiency of the involved parties in expediting the necessary steps. It's generally advisable to closely examine the details and processes involved to assess the realistic nature of the proposed timeline,” said Varma.

Several questions remain unanswered about this new merged entity to be formed, but it will change the TV/OTT experience in the country and acquire the largest market pie. It is expected that its prime competition will be streaming services like Netflix and Amazon, apart from the (if) merged Zee-Sony entity.