How Will Zee-Sony Merger Fallout Impact Disney Star's Deal With India's Largest Company Reliance?

In the wake of the collapsed Sony-Zee merger, Disney Star stands on shaky ground, with a potential $2 billion valuation hit looming stated The Economic Times, citing sources. The dispute over a $1.5 billion sub-licensing deal for the International Cricket Council (ICC) between Zee Entertainment Enterprises (ZEEL) and Disney Star has sent ripples through the industry. The fallout also raises concerns about Reliance's downgrade of Disney Star.

The controversy revolves around ZEEL disputing its $1.5 billion commitment to the ICC deal, claiming it was contingent on the successful completion of the Sony-Zee merger. However, Disney Star vehemently denies this assertion, setting the stage for a high-stakes showdown. According to ET sources, Reliance Industries (RIL) is closely monitoring the Sony-Zee merger, acutely aware of its direct implications for Disney Star's valuations tied to the ICC TV deal.

Reliance has reportedly outlined two valuation scenarios for Disney Star - one with and one without the ICC TV rights obligations. The potential downgrade of up to $2 billion hinges on Disney Star's ability to fulfil its commitments regarding the ICC TV deal and digital rights. Both Disney Star and Reliance have remained tight-lipped about the ongoing situation.

Despite the uncertainties, Disney Star has affirmed its commitment to cover the ICC U19 Men's Cricket World Cup 2024 on Star Sports and Disney+ Hotstar. Interestingly, Disney Star has factored the ICC television rights deal into its tariffs, increasing the bouquet price by approximately 10%, even after losing the Board of Control for Cricket in India (BCCI) media rights.

In a parallel development, reports indicate that Reliance and Walt Disney have signed a non-binding term sheet to merge Viacom18 and Disney Star. If this deal materializes, it could create a media powerhouse with combined revenues of around Rs 25,000 crore.

The Zee Entertainment Enterprises (ZEEL) saga takes a darker turn with the Securities Exchange Board of India (SEBI) nearing the conclusion of its investigation into alleged funds misuse. Citing sources, CNBC-TV18 reported that initial findings pointing to a misuse of Rs 200 crore have now escalated to a staggering Rs 800-1,000 crore benefiting the promoter family, namely Punit Goenka and Subhash Chandra Goenka.

SEBI has been examining allegations of fund siphoning and window dressing of books of accounts, actions believed to have favoured ZEEL's promoter family. The market regulator may conclude its investigation and issue orders within the next 2-3 months. CNBC-TV18 sources reveal that SEBI has identified Punit Goenka's involvement in siphoning off funds, holding him responsible as Key Managerial Personnel (KMP) in various Essel entities. Upon completion of the investigation, show-cause notices are expected to be issued.

Notably, SEBI had informed the Securities Appellate Tribunal (SAT) in October 2023 that the probe against Punit Goenka and Subhash Chandra Goenka would take approximately 8 months. SEBI's final order may include imposing a monetary penalty on the Goenka family and upholding its earlier directive, restricting them from holding positions as directors or KMPs at any listed entity.

Zee's stock witnessed a significant 33% decline on the BSE on January 23 (Tuesday) after Sony Corp's decision to call off the proposed merger with Zee. Industry insiders speculate that Disney Star could incur losses exceeding $1.5 billion from the ICC deal, citing a substantial gap between winning bids and rival offers. A media executive involved in the ICC rights bidding disclosed that Disney Star bid $3 billion for ICC media rights based on an understanding with Zee. In contrast, Viacom18 and Sony Group Corporation-owned Culver Max Entertainment offered bids worth $1.3-1.4 billion, emphasizing the potential massive losses due to overpayment and the challenging monetization prospects if the Sony-Zee deal had succeeded.

The shares of Zee Entertainment Enterprises regained some ground in today's trade after falling as much as 33% in the previous session. The stock was seen trading with gains of more than 8% at Rs 168.30 per share as of 1:40 pm on the National Stock Exchange (NSE). Zee shares have recorded a fall of nearly 32% in the last one week and have declined more than 37% in the last month.

The digital rights' increasing value has rendered it financially unfeasible for a single entity to acquire both TV and digital exclusivity for major cricket properties. The media industry watches closely as the interplay of mergers and contractual disputes shapes the future of Disney Star's valuation and its standing in the ever-evolving Indian media landscape.