In a statement in response to media reports on Sony Pictures Entertainment initiating talks with Walt Disney Co. for a potential acquisition of its India business, Elara Securities’ Karan Taurani noted that there is low likelihood of Sony acquiring the Disney India business.
The statement reads:
“As per media reports, Sony Pictures Entertainment has initiated talks with Walt Disney Co. about a potential acquisition of its India business. The preliminary discussions with Disney are part of Sony’s contingency plan in case its ongoing merger agreement with ZEE faces delay or collapses.
- We believe there is a very high likelihood of Sony only initiating talks with Disney, as the latter is looking out for a strategic partner for its India and global (TV) business.
- ZEE/Sony merger received NCLT approval without any conditions on 10 August 2023 ; since then, the company has been working on closing precedents (CP’s) of the merger and we continue to expect that the merged co listing could happen by Dec ’23.
- ZEE/Sony merger has been long delayed since 22 Sept 2021, and in case it gets pushed beyond Dec ’23, there is a high likelihood that Sony may advance talks with Disney, post that.
- However, we don’t foresee Sony to go ahead with the merger eventually, as:
- Star India made a tepid EBITDA margin of 4 pc (avg. FY19-22), vs ZEE at 24 pc (avg. FY19-22) and Sony at 21 pc (avg. FY19-22)
- Even in terms of synergies and presence across genres, there is a wider overlap for Disney/Sony as they both cater to urban audience in a big way
- All regulatory approvals like CCI, NCLT may take over a year
- CCI may not provide clearance or ask to shutdown channels, as Sony/Disney will have a much larger TV ad. market share of 45 pc (ZEE/Sony TV ad. market share is 25 pc) and
- Sony may have to shelve out much more capital to buyout Disney, as valuations for Disney India is potentially in the range of USD 4 to 6 bn (linear TV only) and USD 10 to 11 bn (linear TV and Hotstar).
- In our view, there is a low likelihood of the ZEE/Sony merger getting delayed beyond Dec ’23 as ZEE has expedited the process (quarterly results being announced on 20 October 2023); the outcome of SEBI-SAT case against Mr. Punit Goenka too may come anytime now, as the order was reserved for a judgement on 27 September 2023. However, in case of the outcome being against the Goenka family, Mr. Punit may move the Supreme Court to fight against the order.
We don’t foresee the merger getting delayed due to Mr. Punit Goenka issue with SEBI-SAT as:
- He has clearly mentioned that the merger is between two entities (he will let go of his Board Seat/CEO designation in case the merger is stalled or delayed because of him) and
- NCLT approval is without any conditions whatsoever
We thereby believe the merger can be delayed further only if Mr. Punit changes his stance on the above and wants the merger to wait or his Board seat to remain, as his case with Supreme court may take time (in case of an unfavourable order by SEBI-SAT against him).
- We believe the ZEE/Sony merger going through is of utmost importance for ZEE valuations to sustain; we don’t foresee Sony taking a firm call to acquire Disney, unless Mr. Punit changes his stance, or the merger is delayed because of him.
- We have a ‘Buy’ recommendation on ZEE with a Sept 24 TP of INR 340 – we will await more developments over the near term on the above.
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