ZEE-investors impasse: Four scenarios that could emerge for ZEEL

In a latest development in the imbroglio between the Zee Entertainment Enterprises Ltd (ZEEL) Board and two largest investors in the media conglomerate – Invesco Developing Markets Fund and OFI Global China Fund, LLC – Invesco has written an open letter to ZEE’s shareholders.

In its open letter, Invesco has demanded strengthened independence on ZEE’s Board on an urgent basis, given leadership failures & prolonged underperformance. It further said that while it was ready for all potential strategic alignments, concerns persist over any transaction terms that benefit ZEE’s promoter group at the expense minority shareholders. Invesco once again reiterated its demand for an extraordinary general meeting (EGM) to hold the Board and management accountable and effect necessary change at ZEE.

Invesco placed on record its deep disappointment with the functioning of the current Board of ZEE and maintained that timely and appropriate action on the part of the independent directors, who serve as fiduciaries to shareholders, would be the solution for better future of ZEEL.

Basis this latest development, Karan Taurani, SVP - Research Analyst (Media & Consumer Discretionary), Elara Capital, has envisaged four scenarios that could emerge for ZEEL in the current context:

ZEE-Sony deal goes through and current CEO remains

We believe this is the most favourable scenario as it will lead to a re-rating of the valuation multiples (May push the price towards Rs 380/ 400 in medium term) due to 1) synergies in the business, 2) MNC backed promoter, and 3) little or no transition due to current CEO of ZEE being there.

If Sony deal goes through without current CEO

This, we believe, is the second most favourable scenario having all advantages as mentioned above, except the fact that transition time could be higher due to a new CEO for ZEE, given their focus on cost efficiency.

If Sony deal does not go through and Invesco is able to get a new CEO

This won’t augur too well for the stock and will not offer any potential for re-rating due to absence of synergies and no new MNC promoter; it will remain stable at current valuation multiples of 15-16x fwd PER in line with other peers (may remain at current levels of Rs 280-300). It may only improve shareholder confidence to some extent as CG overhang may be erased.

If Invesco moves out as a shareholder and current CEO remains, without any change in promoter

This may imply a de-rating for the stock from current levels as CG overhang may come back from an investor perspective, which may drag the price towards the Rs 180-200 range.

It will be very important to monitor the above events in order the ascertain the share price movement for ZEE; maintain our positive bias for now as we believe there is a high likelihood of the ZEE-Sony deal happening in the near term.