ZEE shares in news as IDBI Bank challenges NCLT order on Sony merger

Shares of ZEE Entertainment Enterprises Ltd (ZEE) will be in focus on Wednesday after the company told stock exchanges that it has been served with an appeal on behalf of IDBI Bank Ltd before the NCLAT, Delhi, challenging the order dated August 10, passed by NCLT Mumbai bench, approving the composite scheme of arrangement amongst ZEE, Bangla Entertainment and Culver Max Entertainment (formerly known as Sony Pictures Networks India).

On Tuesday, the stock closed at Rs 274.85 on BSE, up 3.54 per cent. The ZEE announcement came at the fag-end of the trading session.

On August 10, the Mumbai Bench of NCLT had given its nod to ZEE's $10 billion merger with Culver Max. It had dismissed the objections raised by lenders including IDBI Trusteeship, IDBI Bank, Axis Finance, JC Flowers Asset Reconstruction Co and Imax Corp. The bench in its oral order allowed the application for the merger.

Motilal Oswal Securities in an August 29 note said the proposed merger may create a dominant player in the media industry. A war chest of $1.6 billion (capital infusion) and steady annual Ebitda generation capability of Rs 4,000-5,000 crore from the linear business should enable the company to compete within the high-growth digital segment and to fund its recent foray into the sports segment, the brokerage said.

Sony and ZEE had signed definitive agreements in December 2021. As per the deal, after the merger Sony will indirectly hold a majority of 50.86 per cent of the new entity, while the founders of ZEEL will hold 3.99 per cent. Other ZEEL shareholders will hold a 45.15 per cent stake.

Motilal Oswal said ZEE's deep understanding of the Indian entertainment market, better bargaining power, and ability to produce a strong line-up of content should allow it to have a strong play within the OTT space.

"We believe the current valuations do not fully capture the combined entity’s potential growth catalysts," Motilal Oswal said. said.

Motilal Oswal said there has been some stability in ZEE's subscription revenue with the implementation of NTO 3.0 but the persistent softness in the ad market and the company’s decisions on content investment would be the key factors to watch out for.

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