Zee Surges; Promoter Essel Mulls Selling Stake, Strategic Review

Shares of India's Zee Entertainment Enterprises Ltd jumped today, a day after its promoter planned to sell some of its stake in the company and hired advisers to help transform the business into a global tech-media company.

Zee yesterday said that conglomerate Essel Group, which runs the company, intended to divest up to 50 percent of their stake in the television broadcasting and digital media company to a strategic partner. Shares in the company rose as much as 7.3 percent to 470 rupees, their biggest intraday percentage gain in five weeks.

"The company (Zee) is likely to attract a substantial strategic premium that global giants would be willing to offer to leapfrog rivals like FOX (Hotstar) in the Indian market, brokerage Ambit Capital said in a note.

Partners for Zee could include the FAANG stocks, which comprise Facebook Inc, Apple Inc, Amazon.com Inc, Netflix Inc and Alphabet Inc's Google, and John Malone's Liberty Global, Ambit Capital added.

Zee promoters hold 41.6 percent in the company — about 59 percent of this holding is pledged — and will sell only up to 50 percent of their holding at the most. Thus, this should not be seen as the promoters "cashing out", research firm Nomura said.

Zee's content library makes it an attractive partner for any global player, analysts at Kotak Institutional Equities wrote in a note, adding near-term stock performance depends on strategic investor interest, divestment valuations and decision over operating control.

However, the underlying reasons for Essel's divestment, high promoter pledge and liquidity issues in the group's infrastructure business, are worrying, Kotak added.

Essel has hired Goldman Sachs Securities (India) Ltd as its investment banker and LionTree as an international strategic adviser to undertake the strategic review, which is expected to be completed by March/April next year, Zee said in a statement.

More than 15.6 million shares of Zee were traded on the National Stock Exchange, 5.4 times their 30-day average of 2.9 million shares. Zee stock had lost 24.70 percent this year as of last close.