Zee Entertainment Shares Plunge 20% as Sony Terminates Merger Deal

Zee Entertainment witnessed a sharp decline in its share price, plummeting 20% during intraday trading on Tuesday. The stock hit its lower circuit at ₹185.40 following the termination of the Zee-Sony merger deal. The decision to call off the merger has sparked concerns among investors about Zee’s future growth prospects and the overall valuation of its stock.

The speculation surrounding the termination of the Zee-Sony deal had already affected the stock, resulting in a nearly 16% dip in January. With today’s decline, the stock has experienced a total loss of 32.5% for the month. Sony Group Corp officially terminated the merger by sending a termination letter to Zee Entertainment Ltd (ZEEL). Sony stated that the closing conditions for the merger were not met, and attempts to extend the end date were unsuccessful, leading to the termination.

Reuters reported that Zee Entertainment plans to take legal action against Sony Group after the latter terminated the $10 billion merger with their India operations. Media and entertainment industry experts believe that the merger termination will negatively impact both companies. Zee will now require a cash infusion due to its mounting debt and decreasing margins, while Sony will lose access to Zee’s robust regional and sports portfolio.

Following the announcement of the merger termination, brokerage firms downgraded Zee’s stock. CLSA changed its recommendation from ‘buy’ to ‘sell’ and lowered the stock’s target price by 34% to ₹198. The firm highlighted the looming competitive challenges for Zee, particularly amidst reports of the merger between Reliance and Disney Star. Similarly, Motilal Oswal downgraded the stock to ‘neutral’ with a target price of ₹200, citing concerns about the stock’s bottom price and the lack of recovery in OTT’s profitability. Emkay Global Financial Services downgraded the stock to ‘sell’ and slashed the target price to ₹175, predicting a legal tussle between Zee and Sony and potential shareholder activism against Zee management.