On 22 December, 2021, Zee and Sony proposed to create a $10-billion media behemoth in which Sony would own 50.88% and the Chandra family 3.99%, with the remaining shares held by public investors.
The news of the announcement in the media in the run-up to the formal announcement had pushed up the share price: Zee shares were up 90% from 11 September, when Invesco’s letter to the Zee board was shared with the stock exchanges.
The proposed merger was considered to create shareholder wealth. Eleven brokerages had at the time penciled in a 20% rise in the Zee stock, expecting the share price to increase to ₹400-450 apiece over the next 12 months, according to a review of analyst notes byMint.
But not all were convinced.
Bhavtosh Vajpayee, director of research, tech sector, at Invesco, had his doubts and remained skeptical if the merger would ever close.
Fears about the merger not consummating turned real on Monday, when Sony ended its over two-year engagement with Zee.
Sony in a press statement said it was “extremely disappointed” in failing to close the merger. But the Japanese giant should have looked at the suspicions of a large number of foreign investors, many of whom had decided to sell their stake in Zee even before both parties formally called off the merger.
Back in December 2021, foreign institutional investors owned 52.21% of the country’s largest listed media and entertainment company. Two years later, foreign investors’ ownership in Zee had dropped to 27.2%.
Between 22 December 2021 and 20 January 2023, Zee shares have lost 33.7%, or a third of their value, even as the Sensex, or the BSE-30, returned 25.4%.
The first to sell shares in the Zee was among its oldest investors: Invesco.
Less than 16 months after the merger was announced, Invesco sold its entire 17.88% stake in the company for ₹4,492 crore. Beginning in April 2022, Invesco first sold a 7.5% stake at ₹281.46 a share, followed by another 5.3% stake at ₹263.7 a share in October 2022, and finally the remaining 5.1% stake at ₹204.5 a share in April last year.
Singapore-headquartered Amansa Capital too has sold its entire 4.38% stake in Zee. Amansa first sold its 2.33% stake in the October-December quarter, and earlier this month, sold its remaining 2.39%, according to two executives privy to the development.
“Amansa was not getting any clarity from Zee’s management on the proposed merger,” said an executive. “It was horrible and the fund decided to sell its entire stake.”
An email sent to Akash Prakash, founder-chief executive officer of Amansa on Saturday, went unanswered.
Over the past two years, a clutch of marque foreign investors, including the City of New York Trust, Kuwait’s sovereign wealth fund, and Dutch Asset Manager APG Asset Management Fund, too have pared their ownership in Zee.
Outside of Invesco, foreign investors owning 7.11% of Zee sold their shares.
During this time, the ownership of domestic mutual funds and insurance companies of Zee more than doubled—to 43.15% at the end of December 2023, from 20.29% at the end of December 2021.
ICICI Prudential Mutual Fund is the single largest shareholder in Zee, owning 7.25%, followed by Nippon Mutual Fund, which owns 6.12%.
Sankaren Naren, chief investment officer of ICICI Prudential Mutual Fund, declined to offer a comment on the road ahead. But two other fund managers said all options, including seeking a reconstitution of the board, are on the table.
Many retail shareholders, who now own 12.41% of Zee as against 7.15% two years ago, are also becoming belligerent as they continue to second guess on whether Zee would attract a new suitor.
Zee in a statement on Monday said that it will “continue to evaluate organic and inorganic opportunities for growth, leveraging the intrinsic value of its assets”
At 9:17 on Saturday morning, a retail investor, Veeraiah Bandlamudi, created a WhatsApp group called ‘Forum’ with the objective of uniting Zee’s shareholders and, if required, pushing for a change in management.
“Most of us are not happy with the merger getting called off. For now, we want to get most of the investors on the platform, and then we will decide the future course of action,” said Bandlamudi.
By Sunday evening, the group counted 500 members. Almost all of them were questioning the media reports on the merger getting called off.
“We need to unite. This group will be helpful if we together raise our voice on social media,” wrote Akash Sethi, a retail investor.
All hell broke loose when news of the merger was formally made public by Sony on Monday around noon, mainly because of a disagreement on who would lead the merged entity. Sony was disinclined to have Zee Entertainment’s chief executive officer Punit Goenka leading the new company because of a regulatory investigation into his actions at Zee.
Several members of the WhatsApp group wanted Goenka to be ousted as they reasoned that the family should not be allowed to hold the company to ransom.
At least half a dozen retailer investors asked the other members of the group to agree to sign a letter calling for a special shareholder meeting and seeking a reconstitution of the Zee board.
According to the rules governing listed firms, a shareholder or a group of shareholders owning at least 10% of shares can ask a company’s board to call for an extraordinary general meeting.
For now,Mintcannot independently ascertain if any investors have reached out to the Zee board with this demand.
“Given cancellation of deal (a 0-1 event), near term stock will be under pressure and go back to its pre-merger multiple of 12-13x p/e multiple,” Abneesh Roy, executive director at Nuvama Institutional Equities, said in a note post Sony’s announcement on Monday.
Roy warned of more brokerages downgrading Zee in the coming days. “Given uncertainties on new partner, legal case with Sony of $90 million, likely deal between Viacom of RIL and Disney, will be a risky bet to bottom-fish. Expect stock to test below ( ₹200 a share) in near term due to above reasons,” he wrote.
The Zee stock ended trading on Friday at ₹231.75 a share, down 1.6% from the previous close, on the Bombay Stock Exchange. Indian stock markets were closed on Monday.
An email sent to Zee seeking comment went unanswered.
“On this auspicious day let’s just pray to lord Ram to protect us from loss of wealth and health,” said Nishant Baid, another retail investor, referring to the consecration of the Ram Temple in Ayodhya. “We cannot do anything in this situation. We can just pray. Hope positive things concerning Zee will start soon.”