Shares in Zee Entertainment (ZEE.NS) fell 30 per cent on Tuesday as investors fled the Indian broadcaster after its failed $10 billion merger with Sony’s local subsidiary heightened fears over its survival in the competition.
According to London Stock Exchange Group (LSEG), at least six brokerages advised investors to sell Zee shares. Its fall resulted in a fall in market value by over $800 million for Zee, almost four times the entire market capitalisation of news broadcaster NDTV (NDTV.NS).
The merger could help Zee and Sony compete with future merged Indian media businesses Disney (DIS.N) and billionaire Mukesh Ambani’s Reliance (RELI.NS), as well as streaming giants like Netflix (NFLX.O) and Amazon (AMZN.O).
Vivekanand Subbaraman, an analyst at Ambit Capital brokerage, claimed that Zee’s challenges in expanding its business could lead to it losing its second position as the company was already experiencing a decline in profits, advertising revenue and cash reserves. Zee’s revenue fell 68 per cent in the first six months of the current financial year, with its cash reserves dropping 40 per cent.
The challenge that Zee is facing is that the TV business has been declining at a fairly fast pace – its fiscal 2023 ad revenue is still 22% below 2019 levels.
The stock has now dropped by 35% since the announcement of the merger in September 2021, and is down nearly 40% in 2024. Most of the losses are due to the announcement of the deal’s collapse.
Emkay Global brokerage warned that the failed deal could trigger shareholder activism against Zee’s management. CLSA slashed Zee’s rating twice to “sell” and cut its target price by 34 per cent on the stock’s price-to-earnings ratio, a key valuation metric, from 18x currently to a level of 12x at the time of the merger announcement.
