Zee Entertainment Enterprises Ltd shares on Tuesday crashed 33 per cent following the growing uncertainty after the termination of the merger deal with Sony. The shares opened weak at ₹209 a piece, plunged to a new 52-week low of ₹152 and gained marginally to close at Rs 155 as most of the analysts have given a sell rating.

The market capitalisation of Zee fell to ₹14,981 crore on Monday from about ₹23,000 crore. Over 228 million shares on the NSE and 11.95 million shares on the BSE were traded, with over 40 per cent of shares marked for delivery in the cash segment, an indication of accumulation by an investor with deep pockets.

Many brokerages have downgraded shares of Zee Entertainment after its proposed $10 billion merger with Sony Pictures was called off on Monday. Besides calling off the merger plans, which were in work for over two years, Sony has also demanded a termination fee of over $90 million.

The demand for a termination fee will lead to a legal war and make it difficult for Zee to find a suitor.

Foreign portfolio investors holding in Zee have fallen to 28 per cent in the December quarter from 35 per cent in the September quarter, while that of domestic institutions has gone up to 44 per cent from 42 per cent. The promoters holdings remain abysmally low at 4 per cent.

Ashwin Patil, Senior Research Analyst, LKP Securities, said investors have been holding on to Zee shares for a long time in hopes that the consolidation with Sony would make it the biggest media house in India.

Challenges galore

Apart from the merger, Zee is facing a lot of challenges operationally, including a subdued advertising business and a depleting viewership share in its key markets, including Hindi GEC, Tamil, and Marathi.

This apart, competitive pricing in the subscription business and tough fights from leading players in the OTT platform have cast a gloom on the future prospects of Zee, he added.

Brokerage firm CLSA has downgraded Zee to “Sell” from “Buy” earlier. It has also slashed its price target to ₹198 from ₹300 earlier. CLSA sees Zee’s valuation declining to August 2021 levels of 12 times price-to-earnings from the merger estimate of 18 times.

“Zee’s corporate governance has been in focus more so since the unprecedented promoter share pledging crisis of 2019, wherein Zee’s promoter repaid loans with multiple stake sales, leading to promoter shareholding falling to 4 per cent from 42 per cent earlier,” it said. The brokerage expects competition in the sector to intensify with the reported merger of Reliance Industries and Disney Star.

Citi has also downgraded Zee Entertainment to “Sell” and cut its price target on the stock to ₹180 from ₹340 earlier.

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