Zee Learn puts Tree House merger on hold

Zee Learn on Thursday informed the exchanges that it has decided to put on hold the proposed merger with Tree House Education & Accessories. The deal, announced in December 2015, would have created a merged entity with the highest number of pre-school chains in India.

"Zee Learn will not be going ahead with the currently agreed share exchange ratio of 53 fully paid equity shares of Rs 1 each of Zee Learn for 10 fully paid equity shares of Rs 10 each of Tree House," Zee Learn said in a statement to BSE.

According to G Chokkalingam, founder and managing director at Equinomics Research & Advisory Pvt Ltd., "the secondary market had punished Tree House post merger announcement. On the day of merger announcement, Tree House commanded 5.5% premium on the market, on the merger ratio of 10 share of Tree House for 53 shares of Zee Learn, Tree House shareholders would have got Rs 2173 worth of Zee Learn shares by surrendering Rs 2060 worth of Tree House shares."

On Thursday, Tree House recorded 52-week low on the BSE in intra-day trade following the news of merger being put on hold. Meanwhile, all our calls to Tree House remained unanswered.

Had this merger continued, the Tree House shareholders would have got Rs 1484 (53 x Rs 28) worth of Zee Learn shares by surrendering just Rs 790 (10 x Rs 79) worth of Tree House shares - this would have fetched them 88% return on the basis of share prices of these two stocks as on May 27th. This market punishment to Tree House has triggered the rethinking on the merger plan, Chokkalingam added.

According to Chokkalingam, pledging of 100% promoter's shares is also a cause of concern for the minority shareholders as the overall stake of the promoters is itself very low at around 20% - such a low stake with almost 100% pledging certainly shakes up the confidence of the public shareholders.