Zee likely to offload additional 9% stake; Comcast, others likely to join bid race

After selling an 11 per cent stake in Zee Entertainment, Subhash Chandra’s Essel Group may well offload some more stake in the media company.

Utkarsh Sinha, managing director, Bexley Advisors, a boutique, early stage investment bank, feels that it is highly likely an additional nine per cent stake in Zee will come up for sale.

“The initial goal was to sell a 20 per cent stake in Zee Entertainment. Following this sale of around 11 per cent, another nine per cent would likely go to market soon,” he said.

He added that “Comcast (or other bidders) will probably be at the table for future stake sales, as the parent group still intends to further reduce its holdings. If anything, this transaction sets a floor price, which would lead to better outcomes for Zee shareholders if another sale occurs.”

Many companies were in the race to grab stakes in Zee before the company opted to sell smaller stakes to US investment group Invesco’s Oppenheimer Developing Markets Fund.

The Fund has been an investor in Zee since 2002, and already holds about 7.7 per cent in the company.

When Zee announced in November 2018 that it would sell up to 50 per cent of its shares, companies such as the US cable giant, Comcast, and investment company Atairos were leading the race to buy a controlling stake in the broadcaster.

However, Zee subsequently opted to sell smaller stakes, that too  to an existing investor.

“It is always a positive signal when an existing investor doubles down. Invesco is a seasoned hand in Zee, and their increasing their stake is a confidence signal for the firm,” Utkarsh said.

It is always a good sign when promoter holding is down — within healthy limits — in a publicly listed company, he said.

N Chandramouli, CEO, TRA Research, agrees. “If it was Comcast, there was a worry that the US company could later launch a hostile takeover," he said. "But this is an old partnership (with Invesco).  It is a wonderful thing for Zee.”

Earlier this year, there were reports that companies such as Comcast and Atairos  would first explore an equal stake sale with the Zee promoters, but would eventually buy them out to increase their own footprint in India's booming local television and media entertainment industry.

“Zee is a strong performer in a turbulent and rapidly shifting media environment. They have a strong portfolio of assets, including 37 channels across five categories in India, and 39 international channels. Besides their India reach, they reach about half a billion people in 170 countries,” Utkarsh pointed out.

“They have been quick to move to OTT as well with Zee5, although their offering there lags in terms of what Hotstar offers. Plus they have a healthy business in movies, music and events,” he said.

A recent research report by Anand Rathi said Zee's Q1 FY20 revenue grew 13.3 per cent year-on-year to Rs 2,008 crore. Other expenses were on the lower side due to good cost control, and the company would peak its investments in Zee5 in FY20 to ramp up production of ZEE5 originals and movie offerings across languages.

Zee5 currently has 76.4 million monthly active users (MAUs).

With the current management continuing to helm the company, it would be able to steer Zee, which is also the cash-rich business of the Essel group, in the right direction.

Zee Entertainment's shares closed at Rs 347.20 on National Stock Exchange on August 1, down 4% in a market that ended at -1.24% for the day.