Zee Entertainment Enterprises witnessed a dramatic 30.50% plunge on January 23, reaching a 52-week low of Rs 152.50. The sharp decline followed the termination of the $10-billion merger with Sony Pictures’ Indian arm, causing several brokerages to downgrade Zee’s stock.
Global brokerage firm CLSA, among others, downgraded Zee’s stock, projecting a valuation drop from 18x to 12x post-merger termination. Concerns raised by Citi were validated as the stock’s freefall wiped out all gains since the merger plans were announced in August 2021.
Closing at Rs 160.90 on the NSE, Zee experienced a 30.50% decline from its opening at the first lower circuit of Rs 208.3, down 10% from the previous close. Circuit levels were successively lowered to 15%, 20%, 25%, and 30%.
Sony’s decision to scrap the merger cited delays in closing the deal and lapses in meeting closing conditions as key reasons. The company is also seeking a termination fee of $90 million, alleging breaches of the Merger Cooperation Agreement (MCA).
Despite Zee Entertainment denying Sony’s breach claims and termination fee demand, UBS Securities views the merger cancellation as a negative development. The brokerage anticipates a 20% drop in Zee’s implied value per share, currently at Rs 190.
CLSA, highlighting Zee’s challenge of low promoter ownership, expects additional pressure on the stock. Consequently, they downgraded the stock from “buy” to “sell” and reduced the price target by 34% to Rs 198. The aftermath of the terminated merger has significantly impacted Zee Entertainment, prompting investors and analysts to reassess their positions in light of the unfolding developments.
