Analysts are sounding optimistic about Zee Entertainment (ZEEL) after the board of the company approved the merger with Sony Pictures Networks India (SPNI). However, the scrip traded almost flat at Rs 348.75 at around 12.55 pm (IST), while the benchmark BSE Sensex was up 0.71 per cent at 56,720 at around the same time.
While the scheme of merger provides clarity on the structure of the merger, there does not seem to be a major variation from the shareholding pattern as envisaged earlier by the brokerages.
Sony will contribute its existing assets and also infuse Rs 79.5 crore into the entity, giving it a 50.8 per cent share. Sony will pay Zee’s promoters Rs 1,100 crore as non-compete which they will use to acquire 2.11 per cent of the new entity, taking their share to 3.99 per cent. The other shareholders of Zee will hold 45 per cent. The new entity will have a combined cash balance of $1.5 billion including the aforementioned infusions.
Commenting on the announcement, Sanjiv Bhasin, director, IIFL Securities said, “I am very positive on Zee Entertainment after the announcement. After the problems of the last few years due to over-leverage, Zee has now got a big brand. It will help to increase its market share and advertisement revenue.” He further added that price-to-earnings (P/E) will expand as the average revenue per user (ARPU) of Zee Entertainment will also improve.
In a regulatory filing, the company said that the combination of ZEEL and SPNI is expected to achieve business synergies and given their relative strengths in scripted, factual and sports programming, respective distribution footprints across India and iconic entertainment brands, the combined company should be well-positioned to meet the growing consumer demand for premium content across entertainment touchpoints and platforms.
“The seamless blend of rich expertise in content creation, deep consumer insights and success across entertainment genres is expected to drive the combined company’s ability to accrue higher shareholder value,” Zee Entertainment said.
As part of the definitive agreements, the company added that promoters (founders) of ZEEL have agreed to limit the equity that they may own in the combined company to 20 per cent of its outstanding shares. This construct does not provide the promoters (founders) of ZEEL any pre-emptive or other rights to acquire equity of the combined company from the Sony Group.
“The move addresses concerns on governance with the top management of the merged business being led by Punit Goenka as managing director but with Sony appointing majority of the board which will include their current head, NP Singh. The combined entity will be much stronger operationally with $2 billion in revenue and be the largest ex-sports broadcaster in India. The merged entity would be in a better position to compete on streaming with a treasury of $1.5 billion to invest in content and pursue a more aggressive strategy in sports,” Credit Suisse said.
Sony expects the deal to conclude post the end of FY22 and is subject to shareholders and other regulatory approvals.
Siddharth Khemka, head of retail research, Motilal Oswal Financial Services said, “Overall, it is a good deal for minority shareholders. The merger will give direction to Zee’s business. The merged entity will get synergy benefits along with higher competitive positioning in the market.”
He further added that the deal will take 3-4 quarters. Therefore, one needs to see how the board and leadership drive the business.
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