Zee-Sony merger is at risk, says BofA Securities

The merger between Zee Entertainment Enterprises and Sony Pictures Networks India (Sony) is at risk following directions passed by capital markets regulator Securities and Exchange Board of India (Sebi), BofA Securities has said in a note.

“The bull-case on Zee in our view was that after merger with Sony, the corporate governance and business momentum would improve, with the Sony management getting involved. But after Sebi’s interim order against Zee promoters, this puts risks to the merger with Sony,” the brokerage has said.

The US-based brokerage doesn’t have any price target, given the uncertainty surrounding the merger and pressure on revenue growth due to slower ad spending.

“We have a ‘no’ rating on Zee as we await visibility on the merger going through or not. In a scenario Zee promoters get a stay on Sebi order and the merger goes through, the stock may rerate on expectations of improving governance and synergies from the merged entity. In a scenario where the Sebi order stays, risks remain either of Zee-Sony merger not going through. If the merger goes through, Punit Goenka may not be allowed to be chief executive officer of the merged entity. We would then remain unsure of the outlook of the merged entity. We estimate the stock would likely derate to 10-12x price-to-earnings multiple. We adjust our 2023-24 through 2025-26 estimated earnings per share by 0-7 per cent based on our recent checks,” the BofA note added. Business Standard