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Business News/ Markets / Stock Markets/  Zee share price tanks 33%, erases over 7k crore mcap as Sony calls off merger; brokerages downgrade stock

Zee share price tanks 33%, erases over ₹7k crore mcap as Sony calls off merger; brokerages downgrade stock

Zee Entertainment share price opened at ₹208.60 on Tuesday against the previous close of ₹231.75 on the BSE. It extended losses and cracked 33 per cent to close at ₹155.90.

Zee Entertainment share price tanked 33 per cent on Tuesday. (Pixabay)Premium
Zee Entertainment share price tanked 33 per cent on Tuesday. (Pixabay)

Zee Entertainment share price tanked 33 per cent to close at 155.90 on the BSE on Tuesday, January 23, as the termination of the Zee-Sony merger deal instilled unease among investors, prompting apprehensions about Zee's future growth prospects and the overall valuation of its stock.

Zee Entertainment share price opened at 208.60 against the previous close of 231.75 and plunged 34.2 per cent to the fresh 52-week low level of 152.50 during the session.

At present, Zee Entertainment's current market capitalization stands at approximately 14,974.50 crore, a significant decrease from the nearly 22,260 crore recorded in the preceding session. This marks a substantial loss of approximately 7,285 crore in a single trading session.

Speculations had been rife of late that the Zee-Sony deal could be called off. This weighed on the Zee Entertainment share price which is down nearly 43 per cent in January so far.

As Mint already reported, Sony Group Corp has sent a termination letter to Zee Entertainment Enterprises Ltd (ZEEL), citing its plans to call off the merger between its India unit and the media network.

Sony in a statement, said, “The merger did not close by the end date as, among other things, the closing conditions to the merger were not satisfied by then. Sony Pictures Networks India Private Ltd (SPNI) has been engaged in discussions in good faith to extend the end date but the discussion period has expired without an agreement upon an extension of the end date. As a result, on January 22, 2024, SPNI issued a notice to ZEEL terminating the definitive agreements."

Also Read: Sony Group terminates merger with Zee Entertainment

Meanwhile, Reuters reported on 22 January that Zee Entertainment would take legal action against Sony Group after it terminated a $10 billion merger of their India operations.

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

Also Read: Marriage called off, Sony, Zee brace for a separation battle

The merger termination is negative for both companies. According to media and entertainment industry experts, after the termination of the merger, Zee will need a cash infusion given its mounting debt and reducing margins while Sony will lose out on access to Zee’s strong regional and sports portfolio.

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

Brokerages downgrade the stock?

Following the report of the merger deal termination, several brokerage firms downgraded Zee's stock.

Global brokerage firm CLSA revised its recommendation on Zee Entertainment, changing it from a previous 'buy' rating to a 'sell' and slashing the target price of the stock by 34 per cent to 198.

"With the Zee-Sony merger being terminated, we believe Zee’s PE (price-to-earnings ratio) will slump back to 12 times levels, seen before the Sony merger announcement in August 2021," the brokerage firm said.

CLSA highlighted the considerable competitive challenges anticipated for Zee, serving as an additional deterrent for the stock. The firm foresees heightened competition in the media sector, particularly with the reported merger of Reliance and Disney Star.

Also Read: Zee-Sony merger: CLSA downgrades Zee Entertainment to ‘sell’, slashes target price by 34%

Motilal Oswal Financial Services downgraded Zee stock to a 'neutral' with a target price of 200, implying a nearly 13 per cent downside in the stock price from the current level.

"The merger could have created a linear TV business with an EBITDA of 4,000-4,500 crore, which could have boosted OTT investments and the company’s competitive position. But the big question is: where is the bottom of the stock price, which would make it look compelling?" Motilal Oswal said.

"If we assume zero value for the OTT business and assign 10 times to current Linear TV EBITDA (1HFY24 annualized), the stock would be valued at 230 per share. However, if we assume no material recovery in OTT’s profitability and ascribe 15 times on FY26E PAT of 1,070 crore (factors some recovery in linear TV business and adjustments for recent one-offs), the stock would be valued at 167 per share. As a result, we downgrade the stock to neutral with a target price of 200 (18 times on one-year forwards P/E)," said Motilal Oswal.

Also Read: For Zee’s investors, a teary two-year ride

Emkay Global Financial Services also downgraded the stock to a sell from a buy and cut the target price to 175 from 315, implying a 24 per cent downside.

"We believe this situation is a lose-lose for both players, particularly in the face of competition from the bigger potential entity Reliance-Disney. The termination should also result in a legal tussle between the two embroiled companies, as implied in their press release," Emkay said.

"We believe this breakdown can also spur shareholder activism against Zee Management. Further, we reckon that Zee will now draw other suitors for potential deals. Currently, we have downgraded the stock to a sell from a buy due to weak competitive positioning and escalated corporate governance issues. We pull our target price down to 175 at 8 times Dec-25E SA broadcasting EBITDA (from 315; 9.5 times pro-forma broadcasting EBITDA)," Emkay said.

Read all market-related news here

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.


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Published: 23 Jan 2024, 09:17 AM IST
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