A dispute started last year between listed Zee entertainment Enterprises Ltd and institutional shareholder, Invesco Developing markets Fund when the latter called for the removal of the Zee top executive by a requisition notice requesting for an EGM . Incidentally both Invesco developing markets fund and the OFI Global China fund LLC together held a 17.88% equity stake in the media company. In return, Zee moved court declaring that the requisition notice was illegal and requested restraining Invesco from acting in furtherance of the requisition notice. Subsequently, in a major setback to Invesco and the China fund, the Bombay High Court stayed the convening of the EGM of the company’s shareholders and ruled in favour of the Indian TV network company, Zee entertainment Ltd. While Invesco was pushing for a shareholders meeting to revamp the Zee entertainment board, the latter announced merger talks with Sony to create India’s biggest media broadcast network. In response, Invesco stated that it did not oppose the merger as long as it was approved by all the shareholders and it would eventually strengthen the company board substantially. But in a dramatic turn of events, Invesco won an appeal in the Bombay High Court over the ongoing dispute. Meanwhile, Sony Pictures Network India and Zee entertainment signed the historic deal to combine their network of Digital assets, production operations and program libraries to become a publicly listed company subject to necessary approvals. The shareholding post the merger would be with Sony holding a majority stake of 50.86%, Zee promoters holding 2.99% and the balance 45.15% equity stake held by other shareholders. Analysts have become quite bullish on the merger as this should create business synergies, given that both Sony and Zee have relative strengths in sports programming, huge distribution footprint and iconic entertainment brands. The combined entity is well positioned to meet the growing consumer demand for premium content across entertainment platforms. Sony is a global leader in consumer technologies, gaming and entertainment segment and the combined entity should create higher shareholder value. In a recent move last week, Invesco Oppenheimer, the largest equity shareholder in Zee entertainment offloaded up to 8% stake in the company through a block deal. With the reduction in Invesco’s stake in Zee, there is expected to be no further legal hurdle or requisition from them regarding any fresh call for an EGM. Invesco believes that the Sony-Zee merger has great potential to create immense value for Zee shareholders. As per many brokerage reports, Zee’s overall revenue is expected to grow substantially for Q4FY2022 despite softness in the ad environment. Profits are expected to be higher on the back of strong collections by Zee studios, which co-produced movies like The Kashmir Files and Valimai. Fund managers and brokerage houses are bullish on the current valuation of Zee Entertainment and expect a price target of Rs 440 for the scrip. Currently quoting at Rs.286, media analysts expect the combined entity to emerge as a strong leader and player in the TV and OTT business across genres and regional markets. Investors can do their due diligence and check with their financial advisors as per their risk appetite and profile before buying the Zee Entertainment stock.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.