ZEE shares plunge 12.6% on merger call-off reports with Sony

Zee Entertainment Enterprises Ltd (ZEEL) shares plunged 12.6% today after speculations that Sony could have a change of heart when it comes to the merger of its Indian unit with TV broadcasting & software production major, potentially hurting the prospects of the formation of a $10-billion media conglomerate in India.

ZEEL shares opened a gap down at ₹249.75 on the BSE and fell further to an intra-day low of ₹242.3. At the current share price of ₹253.9, down 8.4% vs the last session close, the ZEE shares are trading 15.2% below the 52-week high of ₹299.5 touched on December 12, 2023. Its m-cap has also shrunk to ₹24,469.2 crore.

At the time of filing of the report, 73.44 lakh shares were changing hands on the counter against the two-week average of 5.71 lakh. Zee shares are trading below at 6 out of 8 simple moving averages i.e. five-day, 10-day, 20-day, 30-day, 50-day, and 100-day.

The media & entertainment major says that "exchange has sought clarification from Zee with reference to news quoting "Sony on the brink of terminating $10 billion merger with Zee: The inside story of what went wrong over two years". "The reply is awaited," informs ZEE.

In a statement issued at 1.14 PM on Tuesday, ZEE junked the media report, saying it is working towards making the proposed merger a success.

"We would like to clarify that the above-mentioned article is baseless and factually incorrect. We wish to reiterate that the Company is committed to the merger with Sony and is continuing to work towards a successful closure of the proposed merger," says ZEE.

Although ZEE has received all necessary approvals for the proposed merger with Sony's Indian unit, Sony Pictures Networks India Private Ltd, now known as Culver Max Entertainment Private Ltd, the tiff has reportedly emerged on whether ZEEL's current CEO Punit Goenka should lead the new company or not. Notably, the 2021 agreement signed between both parties had stated Goenka would head the new company, though developments in the aftermath of the deal might have forced Sony to change its course.

Just last month, ZEE sought more time for the proposed merger. All these developments will certainly cause more delay in the merger than the earlier expected two-year timeline, which will end in January 2023.

The National Company Law Tribunal (NCLT) in August 2023 had given its approval to the merger between Zee and Sony. The deal was announced in December 2021 to merge the two big entities to create the largest entertainment network in the country. However, ZEE faced several hurdles and delays due to ongoing legal battles with capital markets regulator SEBI.

In October 2023, in a breather to Goenka, the Securities Appellate Tribunal (SAT) set aside an order barring him from holding key managerial positions in the company and other associated firms. The appellate tribunal, however, directed him to cooperate with the SEBI investigation. The relief had come after he challenged the SEBI order against him and his father Subash Chandra.

Brokerage major Prabhudas Lilladher's media & entertainment preview for the October-December quarter FY24, released on Monday, says despite the delay in the merger, ZEEL remains its “preferred pick” in the media & entertainment space.

For Q3 FY24, it expects ZEEL to report a 1.9% YoY fall in top-line to ₹2,070 crore, with an EBITDA margin of 10.1%.

“Weak ad environment and high-base of subscription business (one-time catch-up revenue in base quarter) are likely to restrict revenue growth. Though we cut our EPS estimates by ~3-4% over FY24E-FY26E amid a slower-than-expected recovery in ad revenues we maintain our ‘BUY’ rating on ZEEL with a revised TP of ₹330 (earlier ₹314) as we roll forward our valuation to Sep-25E," it said.

ZEEL's operating revenue had surged 20.5% in the July-September quarter of FY24 to ₹243 crore, while EBITDA was up 5.7% at ₹332.8 crore. The EBITDA margin grew 5.7% in the said quarter, and the profit was recorded at ₹123 crore, up 8.9% on a YoY basis.

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