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Zee, an Indian media company, experiences a sharp 30% decline in its stock value as both investors and analysts exit the scene following the unsuccessful merger attempt with Sony.

Stock value after Zee Sony merger: Zee Entertainment, an Indian media company, witnessed a significant 30% drop in its stock (ZEE.NS) on Tuesday, marking its worst day ever. This decline came as investors reacted to the fallout from the unsuccessful $10 billion merger attempt with Sony's local unit. Concerns about Zee's survival in a competitive industry intensified.

Stock value after Zee Sony merger
Logos of Zee Entertainment and Sony displayed in an illustration taken on September 1, 2022.

Data from the London Stock Exchange Group (LSEG) revealed that at least six brokerages recommended selling Zee's stock. The sharp decline in Zee's shares resulted in a loss of over $800 million in market value. To put it in perspective, this loss is nearly four times the entire market capitalization of a news broadcaster.


The potential merger between Zee and Sony could have strengthened their position to compete against the soon-to-be-united Indian media businesses of Disney (DIS.N) and billionaire Mukesh Ambani's Reliance (RELI.NS), along with streaming giants Netflix (NFLX.O) and Amazon (AMZN.O).


However, the breakdown of the two-year-long talks on Monday adds more uncertainty for Zee. The company has already experienced declines in profit, advertising revenues, and cash reserves.


According to Vivekanand Subbaraman, an analyst at brokerage Ambit Capital, Zee is encountering difficulties in expanding its business, which could potentially lead to the loss of its No.2 position. The challenge stems from the rapid decline in the TV business, with Zee's ad revenue for fiscal 2023 still being 22% below the levels recorded in 2019.


In the first six months of the current fiscal year, Zee's profit witnessed a significant 68% decline, and its cash reserves also experienced a notable 40% drop.


The stock has taken a hit, falling by 35% since the merger announcement in September 2021 and experiencing a nearly 40% decline in the first part of 2024. A significant portion of these losses occurred earlier this month following reports of the deal falling through.


Currently trading at 166.25 rupees, the stock is down by 28%. The average rating from 19 analysts covering Zee has shifted from "buy" to "hold," and their overall median price target has fallen by 16% to 253 rupees, as per LSEG data.


Among the analysts, only one anticipates a further drop to 150 rupees, while others expect the stock to trade in the range of 170 to 340 rupees in the medium to long term. Emkay Global suggests that Zee "going it alone" is a less likely scenario and predicts potential interest from other suitors. However, they caution that the failed deal might trigger shareholder activism against Zee's management. Although both Japan's Sony Group (6758.T) and Zee have not disclosed the specific reasons for the deal collapse, it appears that a deadlock over leadership for the combined company played a crucial role in jeopardizing the merger.

Following this development, CLSA took a significant step by double-downgrading Zee to "sell" and drastically reducing its target price by 34%. CLSA estimates that the stock's price-to-earnings ratio, a key metric for valuation, will drop from the current 18x to the 12x levels seen when the merger was initially announced. (Note: $1 = 83.1080 Indian rupees)

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