Zee Entertainment shares lose one-third of its value after merger with Sony collapses; Sensex, Nifty Crashes

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NEW DELHI: Zee Entertainment Enterprises Ltd (ZEEL) shares lost one-third of its value in the single trading session of Tuesday as they plunged up to 35% intraday following the Sony Group’s decision to terminate the $10 billion merger. The company’s market cap also fell below the Rs 15,000 crore mark.

The shares of Zee hit a fresh 52-week low of Rs 152.50 on the NSE before settling at Rs 160.90 apiece at the end of Tuesday’s session, down 30.50% from the previous day’s closing. On January 1st, the shares were trading at Rs 285 apiece.

The fall in Zee shares was accompanied by weak market sentiment. After a positive start, selling pressure intensified on Tuesday with BSE benchmark Sensex shedding about more than 1,000 points and Nifty falling more than 330 points. Nifty closed the Tuesday session at 21,238.80, down 333 points (1.54%), while Sensex shut shop at 70,370.55, down 1,053.10 points (1.47%).

Ashwin Patil, Senior research analyst at LKP Securities said that the termination of the merger resulted in a fall of Zee shares as it was held for a long time hoping that it would propel the consolidated entity as the biggest media house in India.

“Apart from that Zee is operationally facing lot many challenges in the form of subdued Advertising business, depleting viewership share in its key markets like Hindi GEC, Tamil and Marathi markets. competitive pricing in Subscription business and slow growing OTT business with competition from the biggies. Therefore the stock is seeing a free fall today and may see some buying post we see a further fall in it,” Patil added.

More than two years after it was first announced, Sony Pictures Networks India (SPNI) (now known as Culver Max Entertainment) on Monday announced the termination of its merger with Zee Entertainment Enterprises Ltd. (ZEEL).

The Japanese entertainment giant is also seeking $90 million in termination fees from Zee for breach of certain contact agreements.

Analysts at brokerage firms see this development as a big negative for the homegrown Indian media & entertainment company and have slashed sharply share price targets.

“Merger with Sony was the key valuation driver to move up in the past two years. But given the termination, we downgrade (Zee) to Sell with March 2025E TP pared to Rs 170 from Rs 340,” said analysts at Elara Capital

The brokerage added, “But if the Disney contract is honoured, TP may move to Rs 130, citing losses in the sports segment. We value the broadcasting business at 10x one-year forward P/E and OTT at 3.0x one-year forward EV/sales. Possibility of any other strategic/financial partner buying majority stake in Zee could provide respite to valuation multiples.” Analysts at Emkay Global downgraded the stock from buy to sell while reducing the target price to Rs 175. “… we downgrade the stock to Sell (from Buy) due to weak competitive positioning and escalated corporate governance issues,” said Emkay.

Commenting on the overall fall in the market, Aditya Gaggar Director of Progressive Shares said that except for Pharma, all other sectors corrected where Media was the major laggard followed by Realty and PSU Banks.

“With a loss of 3.11% & 2.87%, Mid and Smallcap segments underperformed the Frontline Index. On the daily chart, the Index has made a big negative candle but the lower timeframe suggests a probable reversal as it has formed an advanced harmonic bullish cypher pattern with a bullish divergence in RSI. As per the pattern, the targets are 21,550 & 21,770 while level of 20,950 will act as an immediate support,” added Gaggar.

Vinod Nair, Head of Research, Geojit Financial Services said that the market witnessed a continuous decline today, abruptly turning negative despite a positive start, mainly due to substantial selling in heavyweight sectors, particularly finance.

“Mid and small caps witnessed more decline compared to the main indices. Selling by FIIs due to reasons like high valuation and mixed results for the earnings season so far, along with recent escalations in tensions in the Middle East and Red Sea, prompted the investors to book profit from the recent rally. Going forward, markets are likely to witness stock-specific actions during the ongoing earnings season,” added Nair.

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