Zee's search for a partner

The street was hoping for a foreign strategic investor to trigger an open offer, but eventually it came to a financial transaction,” says Mihir Shah, vice president (India), Media Partners Asia. 

That sums up the feeling about the most awaited media deal in India. After more than nine months of speculation, it wasn’t Comcast, Sony or Reliance Jio but US-based Invesco Oppenheimer Developing Markets Fund that took 11 per cent in Zee Entertainment Enterprises for Rs 4,224 crore on July 31.

Zee is among India’s largest media firms. Its 41 channels in 10 languages get a massive 19 per cent share of television viewership even as its OTT brand Zee5 is climbing up the charts. It is the only competitor that gives Disney’s Star India, currently number two on network share, a good fight. On revenues of Rs 7,934 crore, it had an EBITDA (earnings before interest, taxes, depreciation and amortisation) of Rs 2,564 crore in the financial year ending March 2019. This has grown at 16.3 per cent over the last five years. 

When Subhash Chandra, chairman of the $4.3 billion Essel Group and the man who created Zee announced that the firm was looking for a strategic partner to scale up globally, there was a lot of excitement. 

The first big trigger for divestment was the Disney-Fox deal. It has changed the nature of the game in India’s Rs 1,67,400 crore media and entertainment market making it bigger and more tech-oriented. After the $137 billion Alphabet (Google and YouTube’s parent) and the $94.5 billion Comcast, the $60 billion Disney is one of the largest media firms in the world. 

Its ownership of the Rs 13,825 crore Star India means the battle will be fought between the Rs 38,838 crore or $5.5 billion Reliance Jio (which owns Viacom18 among many media firms) and Sony that is just under a billion dollars in India. A Comcast-Zee combination would have had the firepower to take on Disney-Star or Reliance Jio. 

However, the second reason for the Zee divestment is what ruled. At a group level, Essel has piled up a huge debt of reportedly over Rs 17,000 crore and the collateral was promoter’s equity in various businesses. The only way of deleveraging it was to sell stakes in various media and non-media assets. Invesco has owned 8 per cent in Zee for 17 years now, an additional 11 per cent made for a convenient deal. 

But it brings in neither money (that goes to the lenders) nor a strategic partner into Zee. “This is a better deal because it was meeting my timelines,” says Punit Goenka, managing director and CEO, Zee. The group has to settle everything with its debtors by September 30 this year. “If we had more time we could have done that (got in a strategic investor). But since black Friday (January 25 when the Zee stock crashed by over 30 per cent) we have been fighting. My conjecture is that strategic investors were looking for a bargain,” says he. 

That is not surprising given that this was the distress sale of a good asset. What makes Goenka happy is that “the floor price of the Zee stock has been reset.” Invesco bought its stake at Rs 400 a share, way higher than the Rs 360 or it was trading at then. Since end July, it has fallen further to Rs 330 or so. The promoters still own about 25 per cent of Zee stock and they haven’t ruled out another sale to a strategic investor. It may dilute the family’s control over management. But if Rupert Murdoch can sell Fox to a bigger rival to future proof it, why not Subhash Chandra?
Twitter: @vanitakohlik

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