ZEE Entertainment Enterprises share price advanced over 2 percent in the early trade on December 23 post merger approval with Sony Pictures Networks India.
On December 22, the board of directors of ZEE Entertainment Enterprises Ltd has approved the company’s merger with Sony Pictures Networks India.
CEO, who will lead the combined company as its Managing Director and CEO, said that the entire merger process along with approvals will take eight to 10 months.
"While this is a positive step, there are multiple stages in bringing the combined company into existence. As for the process, we will move to the next step that involves all the necessary regulatory and shareholder approvals," he said during a conference call.
CEO, added that with the merger, the brand ZEE will become part of the new entity and the new merged company will decide which brands to keep and for how long.
Even on the streaming side, CEO, said that the two over the top (O TT) platforms, ZEE5 and Sony, will continue to run their businesses independently. "We cannot come together until the merger process is completed," he said.
Sony Pictures Networks India will hold a majority stake of 50.86 percent in the merged entity. The promoters of ZEE will hold 3.9 percent and other ZEE shareholders will hold a 45.15 percent stake in the merged entity, the company said on December 22.
We believe the merger will strengthen the market position of the combined entity and help to grow O TT at a faster pace by allocating growth capital towards premium content, including sports rights.
Further, the strong board and proven operational track record of CEO will enhance the combined entity’s competitive position in markets, which would drive its revenue and profitability as well.
The stock price of ZEE has provided a return of 104% over the past four months. Hence, we maintain our buy rating on ZEE with an unchanged price target of Rs 400
The merged entity will get a strong board, along with senior management that has a very strong operational background. There is a possible upside from the merged entity's higher competitive position in the market and synergy gains, given that both the companies have a significant potential to improve profitability.
At ZEE's current m-cap, this implies a post-money enterprise value of Rs 524 billion for the merged entity, implying an EV/EBITDA of 17x on a FY20 basis and a P/E of 22x.
Considering the stable state 35% EBITDA margin for the linear broadcasting business, the O TT business garners negative value. This could be in for a big change, given the merged entity's strong war chest and ability to invest in content to drive growth.
We upgrade our rating to buy with a revised target price of Rs 425/share (at 25x Sep'23E EPS).
The research firm has maintained a buy call with a target at Rs 395 per share.
The eyes on all the approvals now and need to monitor how other key institutions vote.
Brokerage firm has kept buy rating on the stock with a target at Rs 415 per share.
The merger will require several approvals, including 75% of ZEE’s voting shareholders. It is still in litigation with a large minority shareholder, which carries associated risks.
When the deal is sealed, valuation is likely to return to historical highs of 30x PE, it added.
We believe this merger is a win-win situation, as it will result in material synergies (~6-8% largely on the revenue side) and drive growth as the merged entity will have a cash ammunition of US$1.7bn (inclusive of cash on ZEE’s books). Funds will be utilized to accelerate investment in digital business and bid for premium content like sports.
Maintain buy with a revised target price of Rs 415 (Rs 399 earlier) valuing the stock at 23x FY24 EPS (no change in target multiple) of Rs 18.1 (inclusive of merger synergy benefits). Failure to get the majority shareholder approval of 75% remains a key risk to our call.
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