Zee-Sony merger fails to excite investors but analysts are jubilant

Here is what analysts said ahead of ZEE’s conference call on the merger deal.

• Siddhartha Khemka, Head – Retail Research, MOSL

The deal structure remains the same as per the earlier announcement, with Sony holding 51 per cent stake in the entity and promoters holding 4 per cent, while the rest would be held by the public. The deal now should go for regulatory and shareholder/creditor approvals which may take 3-4 quarters, Khemka said.
“While Zee had a healthy balance sheet and market position, strategically the merged entity’s scale will drive better market standing (revenue and cost synergies) and ability to intensify OTT foray. The merged entity’s higher competitive position in the market and synergy gains will give companies the significant potential to improve profitability. Improving corporate governance and operational performance could also aid in the long run significantly,” he said.

Khemka said the stock, despite the rally in the last couple of weeks, is still trading below 20 times PE, adding that including the Sony Pictures Network India (SPNI), it is still valued attractively.

• Vivek Menon, Co-founder of NV Capital

In the broadcasting space, the merged entity would be numero uno and will give it tremendous pricing power, especially on the ad revenue front, Menon said.
“Further, the investments in content creation would increase as there is increased concentration on both the platforms (Sony Liv and ZEE5) and with the infusion of additional capital in excess of $1 billion, they could compete aggressively with Amazon and Netflix,” Menon added.

The analyst said there would also be a lot of competition for marquee sports properties that are currently housed in Star and coming up for renewal and this combined entity will give tough competition to Disney for all these sports properties.

“Overall, we only see a very positive impact for the combined entity as an outcome of this merger,” he said.

• Pankaj Murarka, Renaissance Investment Managers

Murarka said the combined entity becomes a very formidable enterprise and the largest company in terms of market share and not only in the core GEC segment that generates the highest revenue for the media sector in India.

“On top of that, the whole OTT space is evolving in India and with two OTT platforms of Zee5 and SonyLIV, it has become a very formidable player. With Sony appointing most of the board directors, it addresses the governance issues, to some extent, that investors have had in their mind in respect of Zee,” he said.

• Sharad Shukla, Director – Research, Mehta Equities

The merger, Shukla said, can lead to cost synergies in the TV business and improved profitability.

Both channels offer a wide content variety across genres, he said, adding that the impact of new regulations will be subdued.

“ZEE-Sony as an entity can efficiently bundle the best channels, getting an edge over the competition. Star and ZEE-Sony may become irreplaceable given the sheer size and continue to gain market share. A merged entity will have an advantage on the cost front. If the merger materialises, it will be a win-win for both,” he said.