On January 23rd, shares of Zee Entertainment Enterprises fell 10% in opening trade after Sony Pictures withdrew from its proposed $10 billion merger deal. Zee was locked in lower circuit at Rs 208.30 on the NSE at market open.
As we reported, Zee may take legal action against Sony over this deal cancellation.
In calling off the merger, Sony cited delays in closing the deal by the end date and Zee’s failure to meet all closing conditions. Sony is also seeking a termination fee of $90 million, alleging Zee breached terms of the Merger Co-operation Agreement (MCA). Zee denies these claims.
Analysts Downgrade Valuations and Targets
With the merger cancelled, brokerages have downgraded their valuations and price targets for Zee stock. UBS forecasts Zee’s implied value per share to drop 20% from current Rs 190 levels. CLSA lowered its rating from “buy” to “sell” and cut its target 34% to Rs 198, expecting valuation multiples to contract from 18x to 12x.
Citi also downgraded to “sell” and halved its price target to Rs 180 on expectations of margin pressure. It cut FY24-26 earnings estimates 22-38% on slower margin recovery assumptions. Similarly, MOFSL revised its rating to “neutral” and reduced its target to Rs 200 based on limited clarity on Zee’s future strategic direction after the failed merger.
Competitive Pressures in Media Sector
Analysts believe the called-off deal refocuses attention on rising competitive intensity in India’s media sector. This will be accelerated by the expected merger of Reliance’s media assets with Disney. With uncertainty over its future strategic plans, Zee faces earnings pressure in coming quarters.
