ZEEL Stake sale- Financial or Strategic Partner. Which Augurs better?

Zee stake sale of upto 50% of promoters holding is likely to be concluded soon as per promoter’s statements in investor concall and on an interview with CNBC.

https://www.cnbctv18.com/videos/business/zee-entertainment-stake-sale-to-conclude-by-early-july-says-ceo-punit-goenka-3489961.htm

Also, the promoters mentioned that they have one binding agreement and expecting another after which the family will decide.  One of them is financial investor and another strategic/financial investor.

For Traders, the only thing that matters is the price paid by the buyer and whoever pays the highest will make sense.  Strategic investor as compared to financial is expected to offer better price.

For Promoter, while given the current situation it looks like it will be a complete sale as the promoters have already lost 5.8% holding in ZEEL since Dec-18 because of pledged share selling.  Promoter stake has reduced to 35.79% from 41.6% in Dec-18.  Promoters have to make a tough choice between lower price and more control to higher price and likely no control.  We see limited scope of a strategic partner coming in and offering a better price as well as control to promoters. A strategic partner would most like to gain for himself synergy benefits, which in case of being in same line of business like Star TV, Sony or Amazon would mean shelving Zee5 (the OTT platform of ZEEL) or making it subservient. 

For Investors, a financial investor makes most sense as the objectives of share price appreciation are aligned.  In case, of a strategic investor we see risks of balance sheet clean up which could mean reevaluating inventory investments, loans to related parties and funds parked in offshore entities. ZEEL has seen a 3x rise in inventory from Rs 13bn in Fy15 to Rs 38.5bn in Fy19, leading to weak cash flows weak for the last 3 years. A strategic partner is more likely to take aggressive write–offs and reevaluate investments , any such reporting is seen negatively by investors and could lead to pressure on stock. Also, the long-term outlook will be a function of the interests of the strategic Investor.  ZEEL resurgence in last few years has been attributed to the dynamic leadership of Puneet Goenka and any change in management can rattle investors.

While traders will rejoice a higher price /Strategic partner, long term Investors should prefer Financial investor. 

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