Zee Entertainment shares rally 10% on reports of attempt to revive $10 billion merger with Sony

Shares of Zee Entertainment Enterprises Limited rallied over 10% in trade Tuesday (February 20), pausing their three-day losing run. The stock gained after a report said that its $10 billion merger with Japanese tech giant Sony could be revived. The scrip was trading 9.72% higher at ₹195.85 apiece on NSE during today's late afternoon deals.

Despite rallying 10% today, the ZEEL stock has tumbled 33% so far this year. Earlier on January 23, Zee shares ended 30% lower to mark their biggest single-day drop on record. The stock had first opened 10% lower, post which, circuit filters were revised lower to 15%, 20%, 25% and eventually 30% before circuit limits were opened.

The stock had earlier slipped 8% on January 9, when news of the merger being called off had first surfaced via media reports.

On Tuesday, Zee shares was seen trading higher than the 5-day, 10-day, 20-day simple moving averages (SMAs) but lower than 30-, 100-, 150-day and 200-day SMAs. The counter's 14-day relative strength index (RSI) came at 39.3. A level below 30 is defined as oversold while a value above 70 is considered overbought.

Zee shares were subjected to multiple de-ratings and sell calls since the Sony deal was called off. The Street also cited a rising competition and the dangers arising from a potential merger between Reliance Industries and Disney.

Global broking firm CLSA had downgraded Zee to 'Sell' from 'Buy' with a revised target price of ₹198. CLSA said Zee's valuation declining to August 2021 levels of 12 times price-to-earnings from the merger estimate of 18 times.

Citi has also downgraded Zee Entertainment to 'Sell' after the merger was called off owing to non-operational concerns. Elara, too, had downgraded Zee to 'Sell' with a target of ₹170.

Zee was aiming to revive their $10-billion merger that was called off on January 22, according to an Economic Times report. The report added that meetings have taken place over the last last fortnight to "salvage the deal". CNBC-TV18 couldn’t independently verify the details of the report.

It further added that Zee is expected to inform Sony in the next 24-48 hours if it's willing to accept the terms and conditions.

Representatives from both sides have met at various locations across Mumbai as attempts to revive the deal has gathered steam recently, the report stated.

Post the deal was called off, in a post-earnings call, Hiroki Totoki, president, COO and CFO of Sony said that India, on a long-term basis, has a great growth potential. It's a very appealing market. "We will try to seek various opportunities and if we can find another opportunity that would replace this type of plan," he is quoted as saying.

The Japanese tech giant first proposed to combine its India entertainment business with Zee back in December 2021. The negotiations collapsed after more than two years.

Last month, Sony said that it terminated the transaction because “among other things, the closing conditions to the merger were not satisfied” by the agreed closing date. The Japanese tech giant said it had engaged “in good faith” in discussions to get an extension to the closing date.

Zee at the time said that it denied all allegations made by Sony that it breached the merger agreement, adding that it would take “appropriate legal action.” Zee was seeking a termination fee of $90 million.