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business | IST

Zee-Invesco tussle: Experts say everything appears grey; stock may be rerated

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Elara Securities currently has a target price of Rs 390 on Zee. "We have given Zee a rerating multiple times after the Sony deal came out. And it was just a matter of due diligence, which probably is going on," he said.

Invesco Developing Markets Fund hit back at the management of Zee saying the company's latest disclosures are a ploy to delay the extraordinary general meeting (EGM). Earlier on Tuesday, Zee had said Invesco had been pushing the company to sign a deal with Sony and another 'investor'.
Zee did not name the investor. Invesco has rejected this claim saying the deal was negotiated by and between Reliance and Zee's promoter.
To discuss these developments, CNBC-TV18 spoke with JN Gupta, the former executive director of SEBI and MD of the Stakeholders Empowerment Services, along with Karan Taurani of Elara Securities.
As it turns out, Zee had not just one but two deals on the table. When asked Gupta if both these things could happen parallelly – deals get discussed and the board gets reconstituted. Gupta said we have to shareholders are the ultimate owners for the company. So whatever the courts decide on whether EGM may or may not happen, the decision will be taken by the shareholders.
“The problem is very simple here, that none of us knows which side is coming out with truth or a white paper. Everything appears to be grey, but not white. One thing is very clear that neither Invesco came with a clean hand nor Zee came with the clean hand,” said Gupta.
When Invesco said they wanted to remove Punit Goenka, they did tell shareholders the actual reason--the corporate governance issue. They wanted to bring six new directors but nobody knew why, Gupta added.
Similarly, there is a small problem with the report Zee released yesterday. "Read the letter and note separately. The note states Punit Goenka had not kept the board informed and is informing now. While in the letter it is written the senior staff and board was apprised of the situation and they were told it is not value-accretive for ZEE, said Gupta.


According to Gupta, there is one common factor in both the deals: Punit Goenka was going to continue as managing director. So, now the question arises why suddenly Invesco wants to remove Punit Goenka? Because in the first place, if Invesco was not in favour of the deal earlier in February, why did it not object at that time?
Gupta said, “I am confused, you are confused and shareholders would be confused surely, so the issue is how shareholders will decide and so somebody would have to guide. We are there to guide but probably we would not be in a position to guide unless until we have all the facts with us because on half-baked information whatever guidance we give may not be 100 percent correct.”
As of now, shareholders have no choice to make whether they want to remain invested in ZEE or not because no meeting has been called. However, one thing is certain that is there is going to be a changed ownership pattern. "Either it will merge with Company A or Company B, I do not know and also do not know which company will be better. So, for shareholders as on date, the decision is only whether they see a bright future or not," Gupta added.
"Looking at the two suitors, both the suitors are with deep pockets. So I would not say ZEE is in for trouble in the long run if either on the deal happens but the contours of the deal would have to be decided," he added.
"The most important part, at this juncture, I think is the regulator's role now. The regulator must call for all the details and see who is misguiding and if anybody is misguiding the investors, it should be taken to task because you cannot play with the investors’ money and their sentiment by releasing half-baked information or wrong information in the public domain,” explained Gupta.
When asked how he viewed the Zee stock at this juncture, Taurani said, things are going to turn around for ZEE, either way, be it with Reliance or with Sony, in terms of what has come out in the public domain as of now.
If Zee deals with Sony, in terms of genres and markets they cater to, there are little chances of overlap. The same can't be said for a deal with Reliance, Taurani said. "But if you look at Reliance for that matter, there is some kind of overlap in the regional genre with Zee and also in the rural genre put together," Taurani said.
"There are some pros and cons on both sides. If the deal happens with Sony, there is a big advantage (for Zee) because sports is an offering with Sony, which TV18 does not have. And they can go to market very aggressively with Sony in terms of the entire content bundling put together - on digital and TV segments. Whereas in the case of TV18, they would have this advantage of JIO in terms of the distribution angle put together," he further added.
Either way, the stock would definitely trend upwards but the quantum of rerating would be the deciding factor here. So, the lesser the overlap, the better the packaging, the better the strategy that will decide the quantum of re-rating, Taurani said.
Broadcasting businesses are trading close to 14-16 times one year forward PE. And if a large company like Zee merges with either TV18 or even with Sony for that matter, you will see rerating and that quantum could be 10-20-30 percent, Taurani said. The re-rating would depend on business strategies, execution, and management intent, he added.
Elara Securities currently has a target price of Rs 390 on Zee. "We have given Zee a rerating multiple times after the Sony deal came out. And it was just a matter of due diligence, which probably is going on," he said.
However, if Sony deal is called off, multiples will again come to 14-16. But apparently, the new news is if the deal with Reliance Industries were to go through, we may see some minor rerating, Taurani said. "But we will have to assess in terms of the quantifiable impact," he added.
For the full discussion, watch the video