Zee-Sony merger called off; brokerages downgrade rating

23 Jan 2024 , 10:15 AM

After Sony cancelled a $10 billion mega-merger with its India subsidiary and Zee Entertainment, global brokerage company CLSA downgraded the shares to sell on Monday, warning investors that a valuation de-rating might be on the way.

The termination of the merger is expected to result in a decrease in Zee’s valuation to the levels of 12 times the price-to-earnings (PE) ratio observed in August 2021 before the merger was announced. According to Deepti Chaturvedi and Saurabh Mehrotra from CLSA, the stock experienced a de-rating in the past, notably during the promoter share pledging crisis in 2019 and a decline in business cash conversion.

CLSA downgraded Zee shares from Buy to Sell, lowering its target price from Rs 300 to Rs 198 based on 12x 1-year future PE.

Zee has received notice from Sony to terminate the merger, and Sony is demanding a termination fee of $90 million for claimed violations by Zee, as well as initiating arbitration against Zee.

Zee has refuted Sony’s claims of breach and stated that its CEO, Punit Goenka, was willing to stand down for the sake of a merger.

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