Fallout with Sony (Culver Max) over failed merger deal, subsequent crashing of shares and multiple litigations, the troubles for Zee Entertainment Enterprises Ltd (ZEEL) appear to be far from over.

Embroiled in several legal proceedings, whether it is the SEBI investigation in the fund diversion allegations or Sony invoking arbitration against it for not fulfilling closing conditions of the merger, the industry is abuzz about how ZEEL will weather the storm.

Industry experts feel the Punit Goenka-led company will require a strategic/financial partner to survive the difficult situation, with some of them asserting that ZEEL may find it tough to find one considering the ongoing litigations against it and the fact that not many options are left in the industry.

According to Karan Taurani, Senior VP, Elara Capital, ZEEL will need a partner to survive to stand up to the massive RIL-Disney merger.

“They will need a partner to survive. To really scale up and compete with the might of RIL-Disney. Post the RIL-Disney merger going through regulatory approvals, competitive intensity will increase in favour of the larger players. So, ZEEL might need a financial or a strategic partner to really scale up.

“If you look at the digital side, most companies are making losses and the losses could intensify for these players because the larger ones will have a big say here. But we don't know what partners they'll get because there are not too many options now in the industry. The industry is already consolidated,” he said.

The four big players in the market have been ZEEL, Sony, Disney and Reliance.

He also believes that the ongoing litigations could adversely impact the company in finding a financial partner.

“Of course, legal proceedings are an overhang, but those are the things which will continue for a few more months unless we get a final outcome of it. The decision of having a financial partner could be delayed until the outcome of these investigations is reached,” he said.

Sharing a similar view, Rohan Rai, Associate Partner, RR Legal Partners LLP, said that ZEEL's survival without a strategic/financial partner depends on its ability to thrive independently amid legal proceedings.

“The Mutual Funds (MFs), with significant holdings in Zee Entertainment (ZEEL), are engaging with the board to address concerns about the substantial drop in share prices and the company's decision not to comply with Sony's merger demands. The MFs seek clarity on the post-breakup costs and ZEEL's strategic approach in the absence of a large investor or merger.

“ZEEL's survival without a strategic/financial partner hinges on its ability to thrive independently amid legal proceedings. Prospective partners may weigh these challenges, and Punit Goenka's commitment to achieving over Rs 2000 cr EBITDA by FY26 adds a forward-looking dimension to ZEEL's narrative,” he said.

The share price of ZEEL has witnessed a drop of 20.7% in the last one year and 43% in the last six months.

According to Shivani Bhushan, Senior Associate at TAS Law, “Due to this severe fall in the share price of ZEEL, it is imperative for it to have a strategic/financial partner.”

“ZEEL’s last-ditch effort to push for the merger is the call for Sony to rescind its merger termination,

 and if granted, this may be a lifesaver for the business. According to several media reports who have quoted the experts, it is likely that ZEEL's request would improve the media conglomerate's reputation in the business world if NCLT grants it,” Bhushan said.

As per Soayib Qureshi, Partner, PSL Advocates & Solicitors, ZEEL must consider leadership restructuring, focus on digital transformation, sell off non-core assets and reduce its costs, as these measures will help in finding a strategic/financial partner to survive.

“Reducing costs is essential to increasing profitability, particularly when revenue growth is difficult. It can increase the effectiveness of operations and free up funds for wise investments. Selling off non-core assets or business segments can assist ZEEL in concentrating on its core strengths and generating capital to alleviate debt or invest in critical strategic areas.

“As consumer preferences swiftly transition towards digital platforms, investing in digital transformation is imperative for future growth and competitiveness. ZEEL needs to focus its investment on OTT platform, emphasizing content diversity, user experience, and technological resilience. ZEEL needs to analyse the performance of the existing leadership team and its alignment with ZEEL's strategic objectives,” he said.

Recently, MD Punit Goenka committed to his shareholders that he will deliver an 18-20% EBITDA margin which would roughly translate to over Rs 2,000 crore of EBITDA on cash basis.

In its Q3 earnings released in February this year, ZEEL reported a decline of 3% in its operating revenue and the EBITDA for the company declined by 42.9 % from Rs 366 crore for Q3 FY23 to Rs 209.2 crore in Q3 FY24. The company's profit after tax (PAT) declined 6.4% YoY to Rs 53.4 crore.