Sony Calling Off Merger With Zee Less Likely, Big Negative On Stock If Happens: Analysts
Though the chances of the Sony-Zee merger collapse is less likely, say analysts, the stock will come under pressure if the Japanese conglomerate does pull out.
The reported collapse of the $10 billion merger between Japan's Sony Group and Zee Entertainment Enterprises Ltd. is a less likely probability but can weigh negatively on Zee should it happen, according to market analysts.
The Japanese conglomerate is looking to cancel the deal due to a standoff over whether Zee’s Chief Executive Officer Punit Goenka would lead the merged entity, Bloomberg reported on Monday, quoting sources.
Sony plans to file the termination notice before a Jan. 20 extended deadline for closing the deal, saying some of the conditions necessary for the merger had not been met, the report said.
"Just for one CEO name, the deal to be called off would be an uphill task," Karan Turani, senior vice president of Elara Capital Pvt., told NDTV Profit. He said Goenka's promoter holding of around 4% limits his bargaining power.
"There was less likelihood of this happening. The deal is important for both. We don't foresee the entire deal would be put to risk because a lot of investors are involved and his (Punit Goenka's) holding in the company is about 4%," he said, adding a note of optimism that the deal will sail through by the Jan. 20 deadline.
Last month, the Indian media giants and Sony Group agreed to discuss the extension of the merger deadline, following a two-year delay.
The initial deadline for the completion of the merger was set for Dec. 21. On Dec. 17, Zee had requested Culver Max Entertainment Pvt.—formerly known as Sony Pictures Networks India Pvt.—and Bangla Entertainment Pvt. to extend the timeline required to make the merger effective.
The agreement between Zee and Sony allows for three extensions of the deadline.
The sticking point in the deal is Punit Goenka's role as Zee's managing director, after the market regulator barred him and Subhash Chandra from holding key managerial positions. While the Securities Appellate Tribunal dismissed SEBI's interim order, it asked the regulator to complete the investigation.
Shriram Subramanian, MD and founder of InGovern Research Services, said the probability of the merger not going through is increasing.
"If the merger does not happen, it's a huge negative for Zee's public shareholders and the stock," he said, adding that the competitive aspect of the likely Reliance Industries Ltd.-Disney merger will also weigh on Zee should Sony pull out.
Zee Entertainment Enterprises' shares closed 1.73% lower at Rs 278.15 apiece on Monday, ahead of the news break. The scrip has gained over 10% since Dec. 17, when the deadline extension was announced.
"The run-up in share price was the basis of the deal happening with Sony. If that doesn't happen, you can see a string of downsides for the Zee stock," Turani said.
