Why has Zee Entertainment Stock Shown Volatility This Week?

Published 25-04-2019, 03:44 pm

Zee Entertainment (NS:ZEE) stock shot up by 6% on Tuesday mainly due to the announcement of a BUY rating on Zee stock from brokerage firm Macquarie with a 36% upside. The report also mentioned that five suitors have shown interest in acquiring a stake in Zee.

To remind you, last year, Zee’s management had announced that the company’s promoters intend to sell up to 50% of their stake in Zee. The company is looking to complete the strategic sale by September this year so that it can deleverage its balance sheet.

I believe the five suitors that the report mentions are: Sony, Comcast (NASDAQ:CMCSA), Apple (NASDAQ:AAPL), Bharti Airtel (NS:BRTI), and Reliance Industries (NS:RELI). In my last article on Zee, I had explained that Zee’s talks with Sony have failed as the parties did not reach a consensus on deal’s valuation front. This means there are still four strong contenders left vying for a stake in Zee. In this article, I had also explained how Airtel and Reliance, especially Airtel is now a strong contender to buy a stake in Zee. Airtel would want to acquire Zee’s assets because the content will be the differentiator to its services in the future. Incidentally, a few days back, SEBI had approved Airtel’s Rs 25,000 crore rights issue. Airtel could deploy some of these funds towards buying key assets of Zee.

In my February article on Zee, I had explained why in addition to Sony, Comcast and Apple would be interested in a stake in Zee. Comcast is desperately looking to make its presence in a growth market such as India after it lost its battle to Walt Disney (NYSE:DIS) when the latter announced the acquisition of the critical assets of Twenty-First Century Fox for $65 billion. On the other hand, to offset the slow iPhone growth in India, Apple is motivated to grow its presence in India’s media entertainment market.

Whoever eventually wins in buying Zee’s assets, the high-interest levels from potential buyers make me believe that there will be a bid that will take place. In that case, it is highly likely that the stake sale will happen at a substantial premium to Zee’s current valuation.

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