Zee shares are dropping after Sony called off a $10 billion acquisition

Zee shares are dropping after Sony called off a $10 billion acquisition

A further severe blow comes from Sony's demand that Zee Entertainment pay a $90 million termination fee, citing purported breaches of the merger cooperation agreement (MCA).

Sony terminated the agreement due to two reasons: it failed to fulfill the merger's closing criteria and it took longer than expected to close the agreement by the closure date.

On January 23, the day after Sony Pictures Networks India pulled off its $10 billion mega-merger with the Indian media behemoth, shares of Zee Entertainment Enterprises are expected to be subject to intense selling pressure.

After being initially announced two years ago, the Zee-Sony merger agreement has been in limbo for a while. But Sony Pictures Networks, which is now renamed as Culver Max Entertainment, has formally terminated the agreement, bringing this ordeal to a close.

Since "the closing conditions of the merger were also not satisfied" and the merger was not completed by the deadline, Sony decided to back out of the agreement.

Despite our sincere attempts to reach a consensus on a postponing the January 21 deadline, we were unable to extend the closure date as stipulated in the Merger Cooperation Agreement. We are really saddened that, after over two years of talks, the close "We were not happy with the merger's closing date," a statement from Sony Pictures said.

Zee is owed $90 million by Sony as termination fees.

Sony is also requesting a $90 million termination fee from Zee Entertainment, alleging purported breaches of the merging company's operating agreement (MCA), which is a serious blow to the latter.

In addition, Sony has filed for arbitration and is suing Zee Entertainment for temporary injunction. Zee Entertainment responded by entering into agreements with Bangla Entertainment Private Limited (BEPL) and Culver Max.All of the accusations made about the conditions violation, including the termination fee claim, have been refuted by MCA.

In addition, Zee is getting ready to sue Sony Pictures in the event that the agreement falls through.

Effect on Zee stock: Lower price expectations and declining values

Global brokerage company CLSA reduced the stock to a "sell" recommendation from a previous "buy" call due to Zee's merger plan's unfavorable conclusion. Additionally, CLSA lowered its price objective for the stock by 34% to Rs 198.

"We believe this will have an adverse influence on both parties, as both companies are dealing with intense competition from digital media but face a potential threat brought about by the RIL-Disney merger in the immediate term," said Karan Taurani, research analyst at Elara. Are." Securities.

CLSA concurs as well, as the business thinks that if the merger is called off, Zee's PE would return to the 12x mark that was seen before to the deal's announcement in August 2021. The firm said in a note that "Zee's competition is also going to increase with the reported merger of Reliance and Disney Star."

The CEO and founder of Fintrack Capital, Amit Kumar Gupta, has also voiced alarm about the dramatic drop in Zee's value. The media behemoth and its affiliated businesses are deeply in debt and have pledged shares to lenders, which they must pay back in order to maintain operations. Money is required.

"Zee Entertainment's operating profit margin has more than halved, as well as its consolidated revenue through operations has also stagnated," Gupta said. Has disappeared." The net profit margin dropped from 19% in FY19 to barely 3% in FY23. Additionally, he predicted that Zee will struggle to exist in the event that the Reliance-Disney agreement materializes.

Sham Chandak, head of institutional broking at Elios Financial Services, believes that the only thing keeping Zee's stock afloat amid the unfavorable feelings surrounding the network is the possibility that another Indian media company is interested in purchasing Zee. As. And that's a hefty "if," according to Chandak.

Zee was not relieved, not even by a second white knight.

"Despite this, if any other source corporate house comes ahead to buy Zee, a sharp decline in valuations is expected," he said.

Head of research at IDBI Capital AK Prabhakar predicts that Zee's stock would probably drop below its 52-week low of Rs 170 in reaction to the transaction cancelation. We believe there is no downside to the game since "everyone was placing their bets on a merger, although now there is no trigger." and the promoter's investment is just around 4%. Investors may purchase if things go better from here, according to Prabhakar.

Co-Founder and Director of Invest4Edu Aditya Agarwal anticipates a poor showing for the stock on January 23 due to a gap-down opening.

Technically speaking, Agarwala predicts a decline below Rs 229, which would cause the stock to drop to levels between Rs 200 and Rs 180. Agarwal said, "A breakdown that could take the correction towards the Rs 160–130 levels will also be triggered by a fall below Rs 180, with resistance located at Rs 265-290."

Zee shares had a rough ride in 2023 due to a number of issues. Lender IndusInd Bank filed for bankruptcy against Zee at the start of the year, a move that may have put the merger in jeopardy by stopping all operations, including the transfer of assets.

Axis Finance and JC Flower ARC were among the creditors that opposed the planned merger, posing legal obstacles as well.

Investors in Zee Entertainment as well as the stock are expected to suffer from the sour taste, even as the deal's cancelation finally ends a significant chapter for Zee.