The share price of Zee Entertainment sank by more than 3% on Thursday, adding to the previous session's sharp loss. Zee shares slumped 3.58% to ₹156.20 on the BSE. Zee Entertainment Enterprises' stock price fell 6.36% in the previous session. The stock has fallen more than 37% in three months and 43% in 2024. Zee shares have been under intense pressure recently following the breakdown of its proposed merger with Sony's India unit.
The current announcement that billionaire Mukesh Ambani-led Reliance Industries Ltd (RIL) is entering into a strategic joint venture with global media powerhouse Walt Disney Co. to integrate Viacom18 and Star India may further harm Zee Media.
On February 28, RIL and Walt Disney signed a final agreement to integrate their media operations in India, creating a ₹70,352 crore media powerhouse.
RIL would invest approximately ₹11,500 crore ($1.4 billion) in the JV to expand the over-the-top (OTT) industry. Reliance and its affiliates will own 63.16% of the combined firm, with Disney retaining the remaining 36.84%. The transaction valued the JV at ₹70,352 crore ($8.5 billion) post-money, excluding synergies.
Analysts feel that the transaction will harm other industry competitors, such as Zee, because they would have to compete with a much larger corporation.
RIL's merger with Disney will result in a broadcasting behemoth with a 40-45% ad market share, including significant overlap in urban centers. Star India and Viacom18 now have 77 and 38 channels, respectively, spanning multiple genres. On the OTT side, despite being a late arrival, JioCinema has expanded quickly, first by acquiring IPL rights and then with programming from NBC Universal and Warner Bros.
"Zee, which has already been struggling since its merger with Sony failed, should suffer as a result of the larger entity's formation. Both content creators and advertisers are likely to flock toward the RIL-Disney entity, which will also cater to the greatest audience, further eroding its overall competitive position," Emkay Global Financial Services stated.
Furthermore, it feels that Jio's marketing muscle will make it more difficult for Zee to expand.
"This deal reinforces our negative view on Zee and leaves it with a lesser number of suitors, thus further lowering its bargaining power," the company stated.
It does not expect Reliance to gain significant value from this transaction immediately, but feels it will be strategically favorable and beneficial to the company.
The recommendation for Zee Entertainment remains 'Sell' with a target price of ₹165 per share, while RIL is rated 'Add'. At 11:30 a.m., Zee shares were trading 2.62% lower on the BSE at ₹157.75 each.
