Disney Star's deal with Reliance may take a $2 billion hit amid the Zee-Sony fallout. Here's why

In the aftermath of the aborted Sony-Zee merger, Disney Star finds itself at risk of a significant valuation hit, potentially amounting to an unprecedented $2 billion, The Economic Times reported citing sources.

The fallout from Zee Entertainment Enterprises (ZEEL) disputing a $1.5-billion sub-licensing deal for the International Cricket Council (ICC) has triggered concerns about Reliance's downgrade of Disney Star, it said.

ZEEL contended that its obligations to honour the ICC deal with Disney Star were contingent on the successful completion of Zee's merger with Sony. However, Disney Star disputes this claim.

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Sources told the paper that Reliance Industries (RIL) is closely monitoring the Sony-Zee merger, given the direct implications for Disney Star's valuations linked to the ICC TV deal.

Reliance's Dual Scenarios for Valuation

RIL has prepared two valuation scenarios for Disney Star – one considering ICC TV rights obligations and the other without, sources told the paper. The potential downgrade of up to $2 billion hangs in the balance, contingent on Disney Star servicing the ICC TV deal alongside digital rights.

Despite recent uncertainties, Disney Star has confirmed its coverage of the ICC U19 Men's Cricket World Cup 2024 on Star Sports and Disney+ Hotstar. Notably, Disney Star has factored the ICC television rights deal into its tariffs, raising the bouquet price by approximately 10 percent, even after losing the Board of Control for Cricket in India (BCCI) media rights.

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Both Disney Star and Reliance declined to comment on the ongoing situation the report added.

Further reports suggest that Reliance and Walt Disney have signed a non-binding term sheet to merge Viacom18 and Disney Star, with due diligence and valuation exercises currently underway. If the Reliance-Disney deal materializes, it is poised to create a media powerhouse with combined revenues of around ₹25,000 crore.

Zee Stock Plunge and Potential Losses for Disney Star

In a significant market development, Zee's stock witnessed a sharp 33 percent decline on the BSE after Sony Corp decided to call off the proposed merger with Zee. Industry insiders speculate that Disney Star could incur losses exceeding $1.5 billion from the ICC deal, as the gap between winning bids and rival offers is substantial.

Also Read | Mint Explainer: The collapse of the Sony-Zee merger and its wider implications

A media executive participating in the ICC rights bidding told the paper that Disney Star bid $3 billion for ICC media rights, based on an understanding with Zee. In contrast, Viacom18 and Sony Group Corporation-owned Culver Max Entertainment offered bids worth $1.3-1.4 billion. The executive emphasised the potential massive losses due to overpayment and the challenging monetization prospects if the Sony-Zee deal had succeeded.

The digital rights' increasing value has made it financially unfeasible for a single entity to acquire both TV and digital exclusivity for major cricket properties. As the situation unfolds, the media industry watches closely to see how the interplay of mergers and contractual disputes will shape the future of Disney Star's valuation and its standing in the dynamic Indian media landscape.

More Trouble for ZEEL Amid SEBI Probe of Funds Misuse

Market regulator Securities Exchange Board of India (SEBI) is reportedly nearing the conclusion of its investigation into Punit Goenka and Subhash Chandra Goenka's roles at ZEEL, sources told CNBC-TV18. While initial findings pointed to a misuse of funds amounting to ₹200 crore from ZEEL, benefiting the promoter family. Sources now suggest the alleged violation has escalated to ₹800-1,000 crore.

Also Read | Zee to take legal action after Sony terminates merger: Report

SEBI has been looking into allegations of fund siphoning and window dressing of books of accounts, believed to have favoured ZEEL's promoter family. Sources told the paper that SEBI could wrap up its investigation and issue orders within the next 2-3 months.

Sources also told the channel that SEBI has identified Punit Goenka's involvement in siphoning off funds, holding him responsible as Key Managerial Personnel (KMP) in various Essel entities. Upon completion of the investigation, show-cause notices are expected to be issued.

It's noteworthy that SEBI had informed the Securities Appellate Tribunal (SAT) in October 2023 that the probe against Punit Goenka and Subhash Chandra Goenka would take approximately 8 months.

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SEBI's final order might include imposing a monetary penalty on Punit Goenka and Subhash Chandra Goenka. Additionally, the market regulator may uphold its earlier directive, restricting them from holding positions as directors or KMPs at any listed entity.

ZEEL and SEBI have not responded to queries, CNBC-TV18 added.