Zee-Sony merger approved
The board of directors of Zee Entertainment Enterprises Ltd (ZEEL) has approved the company’s merger with Sony Pictures Networks India (SPNI).
SPNI will hold a majority stake of 50.86 percent in the merged entity. The promoters of ZEE will hold 3.9 percent and other ZEE shareholders will hold a 45.15 percent stake in the merged entity, according to a communique sent out to the BSE earlier on December 22. Punit Goenka will be the managing director and the chief executive officer of the new company, it said.
Both the companies are scheduled to address a conference call with the media at 5pm today.
According to analysts, the merger is significant as it will bring in tremendous synergies between the two companies that will exponentially grow the business as well as the sector.
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Experts had also pointed out that the merger will create the largest entertainment network in India with a 26 percent share of the viewership pie. In addition, Zee-Sony combined will command a share of 51 percent as of FY22 first quarter data in the Hindi general entertainment channel (GEC) segment, which is the top genre on TV in terms of viewership.
In Hindi movies, which is another top-performing genre, the Zee-Sony entity will have a viewership share of 63 percent.
After opening higher in trade on Wednesday, shares of Zee Entertainment remained under pressure on profit-booking, but closed about half-a-percent higher at Rs 349.
What does this deal mean for the stock? Here’s what analysts are saying:
Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services
While Zee had a healthy balance sheet and market position, strategically, the merged entity’s scale will drive better market standing (revenue and cost synergies) and ability to intensify OTT foray.
The merged entity’s higher competitive position will give the company significant potential to improve profitability, and improving corporate governance and operational performance could aid in the long run significantly.
The stock, despite the rally in the last couple of weeks, is still trading at below 20x, and including Sony Pictures Network India, is yet valued attractively.
Jinesh Joshi, Research Analyst, Prabhudas Lilladher
Signing of definitive agreement clears the air surrounding the merger uncertainty. ZEEL’s merger with SPNI will create a win-win situation as it will not only result in material revenue synergies but also drive growth given that the merged entity will have cash ammunition of $ 1.5 billion.
However, shareholder approval will be keenly eyed given the Invesco apprehension over non-compete fee and hike in promoter’s stake from 4 percent to 20 percent in the merged entity.
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Likhita Chepa, Senior Research Analyst, CapitalVia Global Research
The combined firm will have a nine-member board, with five Sony-nominated directors and three independent directors selected jointly. The merger is significant and could be beneficial to both the parties as it could create great synergies between Zee and Sony, which will significantly strengthen the business and the sector. It also has the potential to become India’s largest entertainment network in the medium to long term and can pose strong competition to market leaders Star and Disney.
Sonam Srivastava, Founder, Wright Research
It will create India’s most extensive entertainment network with a 26 percent viewership share, a 51 percent share in the Hindi general viewership, and a 68 percent share in Hindi movie viewership. The merged company could become a market leader soon.
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But the deal success seems to have priced in the stock that zoomed almost 40 percent on the announcement in September. The more significant concern is the lawsuit filed by Invesco (an 18 percent shareholder in Zee), which has raised a demand for a board meeting to oust Punit Goenka who, they think, is getting extraordinary rewards at the expense of the shareholders.
Like any merger arbitrage now, the stock’s performance would be dependent on the merger being finalised, clearing all legal and regulatory due diligence. We would expect the price to surge after things get clear, but it is a waiting game.
Sharad Chandra Shukla, Director – Research, Mehta Equities
Zee-Sony merger can lead to cost synergies in the TV business, improving profitability, besides good content availability in digital, given the wide content variety across genres. Impact of new regulations will be subdued. ZEE-Sony as one entity can efficiently bundle best channels, getting an edge over competition. Star and ZEE-Sony may become irreplaceable given the sheer size and continue to gain market share.
The merged entity will have an advantage on the cost front. Zee is one of the largest players in the Indian TV industry and doing well despite digital threat. If the merger materialises, it will be a win-win for both.
Also read: Zee-Sony merger: Here’s how the united entity will look like
Vivek Menon, Co-founder & Managing Partner, NV Capital
In the broadcasting space, they would be numero uno and will have tremendous pricing power, especially on the ad revenue front. The combined entity would be the largest player in terms of viewership and will also give them tremendous pricing power and help in margin expansion.
Further, investments in content creation would increase as there is increased concentration on both the platforms (Sony Liv and ZEE5) and with the infusion of additional capital in excess of $ 1 billion, they could compete aggressively with Amazon and Netflix.
There would also be a lot of competition for marquee sports properties, which are currently with Star and are will soon come up for renewal. This combine entity will give a though competition to Disney for all these sports properties.
Overall, we only see a very positive impact for the combined entity as an outcome of this merger.
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Parth Nyati, Founder, Tradingo
Overall, this deal looks positive for the stock of Zee from the long-term point of view. Punit Goenka will remain the CEO of the merged entity, however, Essel group is not going to get any free benefit and that was a major concern for Invesco. Essel group will get around Rs 1,100 crore from Sony for the non-compete clause that will be used to keep their stake to 3.99 percent in the merged entity and they can raise their stake up to 20 percent but that should be done through the open market.
This merger will bring synergies to both the companies to compete and grow in the industry and it is believed that this merged entity will be India’s largest entertainment broadcast network that may do very well in different business verticals.
If we look at the market cap of listed media companies in India, then it is negligible, therefore there is scope for serious rerating of this industry and of Zee. ‘Buy on rumour and sell on news’ texture is playing out for the time being but the long-term outlook looks promising for this merged entity.
Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services
The merged entity’s higher competitive position in the market and synergy gains will give both the companies significant potential to improve profitability. Improving corporate governance and operational performance could aid in the long run significantly.
The stock, despite the rally in the last couple of weeks, is still trading at below 20x and including the Sony Pictures Network India (SPNI) is yet valued attractively. Improving corporate governance and operational performance could aid in the long run significantly.
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