Zee’s failed merger with Sony leaves MFs, insurers poorer by Rs 3,130 crore

As of the December 2023 quarter, Mutual Funds held a 32.49% stake with 312.07 million shares, while insurance companies had a 10.66% stake with 102.41 million shares in Zee.

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Mutual Funds and insurance companies collectively lost around Rs 3,130 crore in wealth on January 23 as Zee Entertainment Enterprises Ltd plunged over 32 percent after its $10-billion merger deal with Sony Pictures Networks India fell through.

As of the December 2023 quarter, mutual funds held a 32.49 percent stake with 312.07 million shares, while insurance companies had a 10.66 percent stake with 102.41 million shares in Zee.

The mutual funds consistently increased their stake in Zee over eight consecutive quarters since September 2021, rising from 7.26 percent to the current 32.49 percent, as per the shareholding pattern on the BSE.

On January 23, the stock experienced its worst single-day drop, losing nearly Rs 7,300 crore in market value. The sell-off intensified following a news report alleging that Zee promoters had siphoned off Rs 800-1,000 crore, higher than the initial estimate of Rs 200 crore, according to Sebi’s investigation. On January 24, the stock was trading around 6 percent higher.

After terminating the deal with Sony, Zee’s stock faced downgrades from multiple brokerages, with reduced earnings multiples due to financial challenges. Sony also demanded a $90-million termination fee over alleged breaches of the merger cooperation agreement, a charge denied by Zee.

UBS Securities predicts a 20 percent drop in Zee’s implied value per share to Rs 190 following the merger cancellation. CLSA downgraded Zee to ‘sell’ from ‘buy’, slashing the price target by 34 percent to Rs 198, citing challenges in low promoter ownership.

Citi too has downgraded the stock to ‘sell’ with a reduced price target of Rs 180. The competitive media sector, especially with the expected Reliance-Disney merger, becomes a focal point after the canceled merger. Additionally, Zee’s FY24-26 earnings estimate is cut 22-38 percent, assuming slower margin recovery.

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