ZED Entertainment Enterprises Ltd (ZED) shares rose more than 7% in Thursday trading after a media report suggested that both Culver Max Entertainment Private Limited (formerly Sony Pictures Networks India Private Limited) and ZED were in talks to complete the merger, and that ZED CEO Punit Goenka offered to step down as chief executive of the merged entity.

Following the development, ZED shares rose 7.38% to a high of Rs 263.90 on BSE. The stock is down 8% in the previous month. According to an ET NOW story, ZED wanted Goenka to become CEO, whilst Sony wanted NP Singh, CEO of Sony India, to lead the amalgamated business. According to the article, ZED is divided on Singh's nomination as the merged entity's CEO.

Earlier, it was claimed that ZED would file a lawsuit against Culver Max Entertainment, demanding damages if the two media companies' merger does not go through by January 20. According to ET NOW sources, Sony was unwilling to extend the merger deadline beyond January 20 because it assumed that if the merger failed, it would not be liable to pay any penalties.

ZED and Sony Pictures Networks India signed a massive merger agreement in 2021. It was scheduled to be completed within two years, before December 21, 2023. However, ZED later requested that Bangla Entertainment Private Limited (BEPL) and Culver Max Entertainment extend the deadline for implementing the merger scheme.

Later, word broke that Sony was considering canceling the proposed merger due to delays. However, ZED told stock exchanges that CMEPL and BEPL have opted to engage in good faith negotiations as required by the MCA between the parties.

ZED Q3 Results Preview

Given a high base, ICICI Securities anticipates ZED to post a 15.9% sequential fall in consolidated revenue at Rs 2,050 crore, owing to a great performance by 'Gadar 2' in Q2.

"We expect subscription revenue to remain flat at Rs 890 crore (up 1% QoQ/0.3% YoY) and advertisement revenue to grow 3% sequentially but fall 5.2 percent YoY to Rs 1,008 crore." Given the sports-dominated quarter, we expect allocation to the sports channel would have been higher than for GEC. According to ICICI Securities, Ebitda is expected to decline by 36.1 percent QoQ (or 37.1 percent YoY) to Rs 210 crore in Q3 FY24.

The brokerage forecasts ZED to report a net profit of Rs 15.9 crore, a 35% decrease year on year. "Ad revenue is showing indications of recovery. However, stock price movement would be determined by the news flow on the Zee-Sony deal. The firm maintains its ADD rating on the company and sets a target price of Rs 280 (~19x one-year future P/E multiple).