What's The Big Deal?
And Zee Entertainment Limited is in the news again! A positive this time - the board of ZEL has announced that they’ve reached an agreement with Sony Pictures Networks India Private Limited for a merger. The stock was up 30% yesterday!
For the deal to go through, Sony’s Japanese parent co. will have to infuse Rs 10,000 crores cash in its India arm. Don't ask us why though, that's just a part of the terms of the deal.
As per BloombergQuint calculations, once merged, the Zee+Sony entity will have revenue of Rs 14,000 crores+ with a net profit of Rs 1,341 crores
While they have not disclosed specific details about the capital structure and valuation, at the current stock price for ZEL, the combined entity’s market cap will be Rs 68k crores - more than double what it is for ZEL alone.
Sony will end up with a ~53% stake in the merged entity while existing Zee shareholders will hold ~47%. Interestingly, promoter Subhash Chandra’s shareholding will not be reduced.
Subhash Chandra, the promoter of ZEL will not see his holding be diluted. He owns 3.99% of ZEL and will continue to hold 3.99% of the merged entity as well.
This is because Sony will be giving him some extra shares from its own pocket in exchange for a non-compete agreement.
Smart move by Sony, because Chandra is a proven businessman in the field, having built Zee from the ground up. It wouldn't be great for Sony if he decided to start another competing company. Hence the agreement.
Well, we still have to wait for regulatory approval before the transaction is finalized. It will be interesting to see if the Competition Commission of India (CCI) has any comments, considering the 2 parties are already among the biggest players in India.