ZEE TELEFILMS FACES FLAK ON ZMW MERGER

Last week's settlement between Zee Telefilms Ltd (ZTL) and Rupert Murdoch's Star TV doesn't seem to have met with much approval from the stock markets. The ZTL share lost by about Rs 1,000 over the weekend to settle in the Rs 4,200 range. More losses are expected this week as foreign institutional investors (FIIs) reduce their exposure to the scrip.

Actually, the stock market believes the share price should settle in the Rs 4,000 range as that's the price at which Murdoch has settled the sale of his stake in Asia Today Ltd, Patco and Siticable to ZTL's Subhash Chandra in exchange for ZTL stock and cash. ZTL had risen to Rs 5,200 plus in the wake of settlement talks between the two former partners.

Also, FIIs are not too happy about the manner in which Chandra has gone about merging Zee Multimedia Worldwide (ZMW) with ZTL. Not too many disclosures have been made about ZMW, excepting an enterprise valuation which placed its value at Rs 20,000 million as against ZTL's Rs 15,000 million (1:1.33 ratio). The board finally recommended a valuation of 1:1.13, which was later reduced to 1:1 in a show of magnanimity on the part of Chandra. Some presentations and slides regarding the potential of ZMW is all that investors have been privy to; no published results nor any balance-sheet has been provided. The FII view is that Chandra has walked away with some 20 million ZTL shares without good enough reasons being provided.

This apart, FIIs are perturbed by the fact that Star TV will fight Zee TV in the marketplace using the cash hoard that ZTL will be handing it whereas earlier they could have co-opted (competed cooperatively). Hence, stock market is discounting the share accordingly.

Whatever, be the reason, Chandra has witnessed more than Rs 7,000 million of his wealth evaporate over the week as the share price fell. And that obviously will not make him too happy.