Prabhudas Lilladher's research report on Zee Entertainment Enterprises
ZEEL’s proposed merger with SPNI is a win-win situation, as it will likely 1) result in material revenue synergies (~6-10% due to better scale & reach) 2) drive growth, as merged entity will have cash ammunition of US$1.7bn to fund digital ambitions and 3) absolve uncertainty surrounding board room decision risks. Post-merger, network will have a market share of ~28%, thereby creating an all-encompassing portfolio present across genres. While Mr Punit Goenka is expected to continue as MD&CEO for a period of 5 years, newly constituted board will have SPNI’s dominance with ZEEL’s promoter family getting only one board seat. The deal will require approval of CCI, SEBI and existing shareholders (75% votes have to be in favor).
We believe this development is positive and warrants a re-rating, as it not only results in material synergies but also brings an end to governance concerns. Consequently, we increase our target P/E multiple to 23x (earlier 18x) and arrive at a TP to Rs405, after incorporating merger synergies.
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