Zee Entertainment's Stock Plunges 30% as Sony Ends Merger Agreement

Zee Entertainment Enterprises witnessed a drastic 30% decline in its share price on both the NSE and the BSE following Sony's termination of the merger agreement. Sony is now seeking a $90 million termination fee, leading to a substantial loss of over ₹5000 Crore in market capitalization. This setback has impacted all investors, including Mutual Funds.

About Zee Entertainment past performance

Zee Entertainment had already faced an 8% dip on 9 January 2024, when initial reports surfaced about the merger's cancellation. Zee denied any violation of the merger agreement terms and is actively exploring options to address the situation.

Analysts downgraded Zee Entertainment, cutting their price targets by half, citing increased competition and concerns about the potential merger between Reliance Industries and Disney. This has drawn attention to India's Mutual Funds, which substantially increased its stake in Zee Entertainment since the merger announcement in December 2021. As of December 2023, Mutual Funds own a 32.5% stake in Zee, witnessing a wealth erosion of more than ₹1900 crore.

Key Mutual Fund shareholders include ICICI Prudential Value Discovery Fund (7.25%), Nippon India Multi Cap Fund (6.12%), and HDFC Mid-Cap Opportunities Fund (5.2%). As of December 2023, 29 Mutual Funds held shares in Zee Entertainment, constituting 32.49% of the total shareholding.

Promoters held a mere 3.99%, with public shareholding dominating at 96.01%. Key Mutual Fund shareholders include ICICI Prudential Value Discovery Fund (7.25%), Nippon India Multi Cap Fund (6.12%), and HDFC Mid-Cap Opportunities Fund (5.2%). In December 2023, 51 Mutual Funds bought, and 33 sold Zee Entertainment shares, resulting in a net change of 1,415,436 stocks.

Financial Challenges

Both Zee and Sony have been under pressure due to increased competition from digital media. Sony India's ad revenue declined by 4% YoY to ₹3,300 crore, while Zee's ad revenue fell by 8% YoY to ₹4,100 crore in FY23. Subscription revenue also faced challenges due to delays in implementing New Tariff Order 3.0.

The proposed merger aimed to create India's largest entertainment network, capturing 26% of the viewership share. Analysts believed it would lead to better advertising revenue growth than the industry average. The merger would have leveraged Sony's strength in general entertainment and sports alongside Zee's edge in regional content, benefiting streaming platforms ZEE5 and SonyLIV.

Final Words

Sony's termination of the merger agreement, coupled with the demand for a $90 million termination fee, has prompted Zee to reject the claim. Zee plans to take legal action to protect stakeholder interests, setting the stage for a challenging legal battle between the two entities.