The prospect of Sony Pictures Entertainment acquiring Disney's India business appears to be quite slim, said Karan Taurani, SVP- Research Analyst (Media, Consumer Discretionary and Internet), Elara Capital.
Sony Pictures Entertainment has commenced discussions with Walt Disney Co. regarding the potential purchase of Disney's India business, according to a news report.
The initial talks with Disney form a vital component of Sony's contingency strategy, as its ongoing merger agreement with Zee Entertainment Enterprises is experiencing considerable delays, sources told Mint.
Previously, multiple companies, such as Reliance Industries (the proprietor of Viacom18), the Adani Group, Blackstone and Sun TV Network, have considered the possibility of acquiring some or all of Disney's operations in India.
"We believe there is a very high likelihood of Sony only initiating talks with Disney, as the latter is looking out for a strategic partner for its India and global (TV) business," Taurani said.
"Zee-Sony merger received NCLT approval without any conditions on August 10, 2023. Since then, the company has been working on closing precedents (CP’s) of the merger and we continue to expect that the merged co-listing could happen by December 2023," he added.
The Zee-Sony merger has been long delayed since September 22, 2021, and in case it gets pushed beyond December 2023, there is a high likelihood that Sony may advance talks with Disney, post that.
"However, we don’t foresee Sony to go ahead with the merger eventually, as Star India made a tepid EBITDA margin of 4% (average FY19-22), versus Zee at 24% (average FY19-22) and Sony at 21% (average FY19-22). Even in terms of synergies and presence across genres, there is a wider overlap for Disney/Sony as they both cater to urban audiences in a big way. Moreover, all regulatory approvals like CCI, NCLT may take over a year," Taurani said.
The CCI may not provide clearance or ask to shutdown channels, as Sony/Disney will have a much larger TV ad market share of 45% (Z/Sony TV ad market share is 25% and Sony may have to shelve out much more capital to buyout Disney, as valuations for Disney India is potentially in the range of $4-6 billion (linear TV only) and $10-11 billion (linear TV and Hotstar), he added.
There is a low likelihood of the Zee-Sony merger getting delayed beyond December 2023, as Zee has expedited the process (quarterly results being announced on October 20, 2023).
The outcome of the SEBI-SAT case against Punit Goenka too may come anytime now, as the order was reserved for a judgment on September 27, 2023. However, in case the outcome is against the Goenka family, Punit Goenka may move the Supreme Court to fight against the order.
"We don’t foresee the merger getting delayed due to Punit Goenka's issue with SEBI-SAT as he has clearly mentioned that the merger is between two entities (he will let go of his Board Seat/CEO designation in case the merger is stalled or delayed because of him) and NCLT approval is without any conditions whatsoever; we thereby believe the merger can be delayed further, only if Punit Goenka changes his stance on above and wants the merger to wait or his Board seat to remain, as his case with Supreme court may take time (in case of an unfavourable order by SEBI-SAT against him)," Taurani said.
"We believe the Zee-Sony merger going through is of utmost importance for Zee valuations to sustain. We don’t foresee Sony taking a firm call to acquire Disney, unless Punit changes his stance, or the merger is delayed because of him," he added.
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