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Zee-Sony merger unlikely to be called off, delay to hurt stock

The proposed merger between Zee Entertainment Enterprises Ltd. and Sony Group Corp.’s India unit is unlikely to be called off due to the notice issued by the Competition Commission of India.

That’s according to Karan Taurani, senior vice president at Elara Capital. “The CCI (notice) is more of an enquiry,” Taurani told BQ Prime’s Niraj Shah. “I don’t think the merger will be called off.”

The stock price of Zee Entertainment, however, could come under pressure if there is any delay in the proposed merger, he said. “We are all expecting a very sharp re-rating in terms of valuation multiples, primarily because of synergies that are coming because of the merger,” he said.

According to Taurani, the stock is already at a fair valuation and the risk-reward is “very” favourable. “The stock may likely see a downside of five to 10% in the worst-case scenario,” he said, while the potential upside will not be beyond 40% to 50%.

Zee Entertainment would see an upside in its stock movement on the back of the merger deal going through, with any delay dragging the upside possibility lower, he said.

Shares of Zee Entertainment tumbled the most in 10 weeks after the report of the CCI enquiry. On Thursday, Reuters reported that the competition watchdog said in a notice that the merger between Zee Entertainment and Sony will potentially hurt competition in the sector as the merged entity will have “unparalleled bargaining power”.

Sony and Zee signed definitive agreements for the merger of Zee Entertainment into Sony Pictures Networks India. If the merger is sealed, the combined entity will have a value of $10 billion, Punit Goenka, managing director of Zee Entertainment, said in an interview last year. Bloomberg Quint

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