In an unexpected turn of events, Zee Entertainment Enterprises announced on September 22 that its board has approved the merger of the company with Sony Pictures Networks India (SPNI).
“The shareholders of SPNI will hold a majority stake in the merged entity,” Zee said in a stock exchange filing on September 22. “The shareholders of SPNI will also infuse growth capital into SPNI as part of the merger such that SPNI has approximately $1.575 billion at closing for use in pursuing other growth opportunities.”
Zee Entertainment shares surged 25 percent to hit a 52-week high of Rs 319.50 . The stock could gain even more as the deal analysts hailed the deal, with some expecting the stock to get significantly re-rated.
Here is what analysts have to say about the Zee-Sony deal:
Vivek Menon, Co-Founder, NV Capital
This is a positive and welcome move. After the merger talks of Sony Entertainment with Viacom18 dropping, this consolidation will add synergies to the portfolio of both the entities, especially in the sports and OTT verticals.
ZEE will also get access to Sony’s international catalogue to exploit and monetise. The corporate governance overhang of ZEE Entertainment should also fade away with this merger and enhance investor confidence.
The combined entity will be in a superior position to compete with Disney more effectively, both on the distribution and advertising side.
Overall, the consolidation looks value accretive.
Ashwin Patil, Senior Research Analyst (media) at LKP Securities
The stake of Sony and Zee in the merged company would be 39.5 percent and 61.5 percent. However, due to the growth capital infusion of about Rs 12,000 crore by Sony, this would be 53 percent for Sony and 47 percent for Zee.
Zee promoters’ stake would stay at 4 percent, if they agree to the non-compete agreement. They have the option to increase their stake up to 20 percent over a period of time.
Sony is strong in the Hindi GEC segment, especially in non-fiction space where Zee is weak. Zee is strong in movies—across genres— and regional GEC space.
Zee has nearly 18 percent network viewership share and Sony should be nearly 10-12 percent in our view.
Sony is strong in sports as well. Thus, it would be a good strategic fit from a broadcast, digital and content perspective.
We expect Zee to get significantly re-rated. It currently trades at about 23 times and 19 times FY22 and FY23 earnings, respectively.
Santosh Meena, Head of Research, Swastika Investmart
The deal with Sony will be a very positive trigger for Zee, as it will have a quality promoter and that will ease the issue of corporate governance.
Though the deal is a nonbinding agreement, so it will take some time for more clarity to emerge but this deal will bring a good synergy for both the companies to grow their businesses and the combined entity will become the largest player in the industry.
The stock is trading at very attractive valuations and it is one of the strongest and FIIs favourite stock in the media space and if this deal concludes, then we may see a big rerating in the counter.
Technically, it is witnessing a breakout of falling channel formation and has managed to move above its all-important moving averages where Rs 300 is an immediate and psychological hurdle. Above this, the stock is likely to head towards the Rs 350-mark. On the downside, Rs 250 is a strong support.
Likhita Chepa, Senior Research Analyst, CapitalVia Global Research
ZEEL’s merger with Sony is in line with its strategy of achieving higher growth and profitability as a leading media and entertainment company across South Asia.
Sony’s shareholders will hold a majority stake in the merged entity. Punit Goenka will continue to be the managing director and CEO of the merged entity.
The merged entity and its management team will benefit greatly from ZEEL’s competence in content production and deep customer connections, as well as Sony’s success across entertainment genres.
This might increase the shareholders’ value multifold over the long term thereby strengthening its prospects.
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