Zee-Sony merger: What should investors do with ZEEL shares now?

Shares of Zee Entertainment Enterprises Limited swung between gains and losses on Wednesday after the board of the media firm approved the merger with Sony Pictures Networks India (SPNI).
 
The stock rose 2.58 per cent to hit an intraday high of Rs 358 on the Bombay Stock Exchange (BSE) in early trade. However, it shed all its early gains and tanked 4.66 per cent to hit an intraday low of Rs 332.75. It ended 0.03 per cent lower at Rs 348.90 against the previous close of Rs 349 on BSE on Wednesday.
 
With a market capitalisation of more than Rs 33,500 crore, the shares stand higher than 50 day, 100 day and 200 day moving averages but lower than 5 day and 20 day moving averages.
 
Sony Pictures Networks India Ltd (SPNI) and Zee Entertainment Ltd (ZEEL) on Wednesday announced that they have signed definitive agreements to merge both the companies to form a new entity. This announcement comes after the Zee board meeting on Tuesday. Punit Goenka will lead the merged entity.
 
As per the deal, Sony Pictures Entertainment (SPE) will indirectly hold a majority of 50.86 per cent of the combined company, while ZEEL will hold a 45.15 per cent. ZEEL promoters (founders) will hold 3.99 per cent. SPE will pay a non-compete fee to certain promoters (founders) of ZEEL, which will be used by them to infuse primary capital into SPNI, allowing them to eventually acquire 2.11 per cent SPNI shares in the combined company.
 
So what should the investors do with the shares now? Here's what experts say:
 
"This merger would be a great synergy for the companies. But the deal success seems already priced in the stock price that zoomed almost 40% on the announcement in September. The more significant concern is the lawsuit filed by Invesco (an 18% shareholder in Zee) which has raised a demand for a board meeting to oust Punit Goenka, who they think is getting extraordinary rewards at the expense of the shareholders," Sonam Srivastava, Founder at Wright Research told BusinessToday.in.
 
"Like any merger arbitrage now, the stock’s performance would be dependent on the merger being finalized, clearing all legal and regulatory due diligence. We would expect the price to surge after things get clear, but it is a waiting game," she added.
 
According to Ujjawal Kumar, Research Analyst, Green Portfolio, the merger will create a lot of synergies and will position Zee-Sony as the 2nd largest player in the industry.
 
"We believe the Zee, Sony merger is positive news for the company. With the closing of this deal, we believe the company should be able to post revenue growth and profitability going forward and hence is a good re-rating target,” he said.
 
“We believe the company should trade at one year forward PE of 20+ depending on how the synergies play out. Rising competition from OTT players like Netflix and Amazon is a concern from the competition point of view," Kumar added.