In the early hours of Wednesday, Zee Entertainment witnessed a remarkable recovery, with its share price surging by over 7%, reaching ₹168.10 per share on the BSE. This positive momentum followed a significant 33% decline in the previous session, triggered by the abrupt termination of the much-anticipated merger deal with Sony.
The fallout from the terminated merger dealt a severe blow to Zee Entertainment Enterprises, causing its shares to plummet to ₹155.90 on January 23. The termination also compelled Sony to seek a $90 million termination fee, resulting in Zee losing more than ₹7,000 crore in market capitalization within a single day.
The market response was swift, with approximately 24 crore equity shares of Zee Entertainment Enterprises changing hands on January 23. The delivery volume stood at 10 crore shares, exceeding the one-week average trading volume of 8 crore shares.
Analysts foresee a sharp de-rating of Zee’s valuation multiple in the aftermath of the failed merger, placing financial strain on the company due to termination charges. Additionally, uncertainties regarding the payout related to ICC rights are now casting shadows on Zee’s sports aspirations.
Ashwin Patil, Senior Research Analyst at LKP Securities, highlighted the operational challenges faced by Zee, including subdued advertising business, decreasing viewership share in key markets, competitive pricing in the subscription business, and slow growth in the OTT sector. This confluence of challenges contributed to the free fall in Zee’s stock, although some buying activity may be anticipated post a further decline.
Amidst the turmoil, Zee founder Subhash Chandra sought Finance Minister Nirmala Sitharaman’s intervention to safeguard the interests of Zee Entertainment’s minority shareholders. Chandra expressed concerns over SEBI’s actions, considering them predetermined, and criticized a new notice sent to former directors as an attempt to sensationalize the matter.
Brokerages responded swiftly to the termination, downgrading Zee shares and slashing target prices. CLSA downgraded the stock to ‘sell’ from ‘buy,’ reducing the target price by 34% to ₹198. The foreign brokerage emphasized the competitive challenges ahead for Zee, especially with the reported Reliance and Disney Star merger.
As a consequence of the terminated merger, CLSA predicts a significant slump in Zee’s PE (price-to-earnings ratio) to levels seen before the Sony merger announcement in August 2021.
Zee Entertainment shares have endured a turbulent week, witnessing a more than 32% decline and a staggering 38% drop in one month. Over the past year, Zee shares have fallen by more than 25%. At 9:50 am, Zee shares exhibited a modest recovery, trading 4.81% higher at ₹163.40 apiece on the BSE.