Zee Entertainment gains 6% after CCI's conditional nod for merger with Sony

Shares of Zee Entertainment Enterprises (ZEEL) gained 6 per cent to Rs 283.75 in Thursday’s intra-day trade, after the Competition Commission of India (CCI) granted conditional approval to the proposed merger of the company with Sony Pictures Networks (SPN) India.

“The Competition Commission of India (CCI) has, vide its letter dated October 04, 2022, approved the amalgamation of Zee Entertainment Enterprises Limited and Bangla Entertainment Private Limited (BEPL) with Culver Max Entertainment Private Limited (CMEPL) (formerly known as Sony Pictures Networks India Private Limited) with certain modifications,” ZEEL said in an exchange filing.

In the past one week, the stock of ZEEL appreciated 13 per cent, as compared to 3.5 per cent rise in the S&P BSE Sensex. The stock rallied 26 per cent in the past three months, as against 9 per cent surge in the benchmark index. However, in in the past six months, it underperformed the market by falling 5 per cent, as compared to 2 per cent decline in the Sensex.

Last month, the National Company Law Tribunal had asked Zee to convene a meeting with its shareholders on October 14 in order to seek approval for the proposed merger.

Zee TV and Sony Entertainment Television are the flagship channels in Hindi general entertainment. The two players have a combined viewership share of 36 per cent in Hindi general entertainment, data suggests.

“We are delighted to receive CCI approvals to merge ZEEL into SPN. We will now await remaining regulatory approvals to finally launch the new merged company. The merged company will create extraordinary value for Indian consumers and eventually lead the consumer transition from traditional pay TV into the digital future,” Sony Pictures Networks India said on the CCI approval.

Analysts believe that the approval paves way for the consummation of the merger by Q4 of this fiscal year.

"While the conditions have not yet been divulged by the companies or CCI, media reports indicate it involves shutting down of some channel. We expect either of any regional channel or second GEC segment to be sold/shut down. Most importantly, the approval paves the way for consummation of merger by Q4 as indicated by the company. Fundamentally, we expect ad growth recovery in Q3 led by the festive season," ICICI Securities said.

On the other hand, analysts at Sharekhan believe that the proposed merger would be a strategic fit from a revenue perspective and would help the combined entity to emerge as a strong player in the entertainment industry.

"The merged entity would allocate its growth capital towards premium content, including sports event rights, which would strengthen its position in the OTT space. “We expect the company to deliver a 14 per cent CAGR in adjusted net profit over FY2022-FY2024E,” the brokerage firm added.