Zee Entertainment Enterprises Ltd. encountered a tumultuous trading day on January 23, witnessing a dramatic 30% plunge in its share price to reach a 52-week low of ₹162.25 on the Bombay Stock Exchange (BSE). The steep decline was triggered by the termination of the much-anticipated merger deal with Sony Group Corp., intensifying concerns among investors about Zee’s future growth trajectory and the overall valuation of its stock.
The trading session commenced with Zee Entertainment’s share price opening at ₹208.60, a significant drop from the previous close of ₹231.75. The bearish sentiment persisted, leading to the stock hitting a fresh 52-week low during intraday trade. At present, Zee Entertainment’s market capitalization stands at approximately ₹15,940 crore, marking a substantial decrease from the nearly ₹22,260 crore recorded in the preceding session. This equates to a staggering loss of approximately ₹6,320 crore in a single trading session.
Speculations surrounding the potential termination of the Zee-Sony deal had already impacted Zee Entertainment’s share price negatively in January, with the stock down nearly 16% as of the previous session’s close. The latest plunge, coupled with today’s low, brings the total loss in January to a staggering 41%.
The termination of the merger deal by Sony Group Corp. came after a 30-day grace period ended over the weekend, during which the two parties failed to reach an agreement on a deadline set in late December. The termination was formalized through a notice issued by Sony Pictures Networks India Private Ltd (SPNI) to Zee Entertainment Enterprises Ltd (ZEEL), citing unmet closing conditions and unsuccessful discussions to extend the end date.
Also read: Zee Entertainment Denies Reports of Sony Scrapping $10 Billion Merger Amidst CEO Leadership Discord
In response to the termination, Zee Entertainment is reportedly planning to take legal action against Sony Group. The termination of the $10 billion merger, which was announced more than two years ago, was attributed to disagreements over leadership roles within the combined entity. Sony reportedly expressed reluctance to have Zee’s Punit Goenka at the helm, leading to the unraveling of the deal.
The termination has raised significant concerns about Zee Entertainment’s financial position, with potential implications for its debt levels and margins. It also poses challenges for Sony, as the termination means a missed opportunity to gain access to Zee’s robust regional and sports portfolio.
Several brokerage firms reacted promptly to the news by downgrading Zee’s stock. CLSA, a global brokerage firm, revised its recommendation from ‘buy’ to ‘sell’ and slashed the target price of the stock by 34% to ₹198. The firm highlighted the considerable competitive challenges anticipated for Zee, projecting a significant drop in the price-to-earnings ratio.
The termination of the merger deal is viewed as negative for both companies, each facing unique challenges as a result. For Zee, the termination has raised questions about its financial stability, necessitating potential cash infusion amidst mounting debt and reducing margins. On the other hand, Sony loses out on strategic assets and faces increased competition in the media sector.
This development is expected to have broader implications for the media and entertainment industry, particularly with the reported merger of Reliance and Disney Star. The termination of the Zee-Sony deal signifies a shift in the dynamics of the sector, prompting industry experts to closely monitor the unfolding developments and their impact on the future landscape of Indian media and entertainment.