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Zee Entertainment gets multiple downgrades after Sony merger called-off
Multiple brokerages have downgraded shares of Zee Entertainment after its proposed $10 billion merger with Sony Pictures was called off on Monday after being in the works for over two years. Additionally, Sony has also demanded a termination fee worth over $90 million. Post the announcement of the merger with Sony in 2021, the shares have not managed to retest the price of ₹347.8, which was the closing price of December 21, 2021, a day before the merger announcement. Brokerage firm CLSA has downgraded Zee to "Sell" from "Buy" earlier. It has also slashed its price target to ₹198 from ₹300 earlier. CLSA sees Zee's valuation declining to August 2021 levels of 12 times price-to-earnings from the merger estimate of 18 times. "Zee's corporate governance has been in focus more so since the unprecedented promoter share pledging crisis of 2019, wherein Zee's promoter repaid loans with multiple stake sales, leading to promoter shareholding falling to 4% from 42% earlier," the note said, adding that the merger would have addressed the low promoter holding issue with Sony holding 51%. The brokerage also expects competition in the sector to intensify with the reported merger of Reliance Industries and Disney Star. Citi has also downgraded Zee Entertainment to "Sell" after the merger was called off owing to non-operational concerns. The brokerage has cut its price target on the stock to ₹180 from ₹340 earlier and also slashed its earnings estimates by 22% to 38%, respectively, for the financial year 2024-2026 as increasing competitive intensity takes centre stage. Another brokerage that anticipates a sharp de-rating of Zee's valuations is Elara Capital, which has halved its March 2025 price target to ₹170 from ₹340 earlier. Source - CNBC
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