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The deal could be announced this week.
Zee had bought 50 percent stake in Ten Sports in 2006 for an enterprise value (EV) of USD 114 million or roughly Rs 800 crore.
Ten Sports contributes about 15 percent to Zee's total sales. However, Zee has wanted to exit this business as it incurred earnings before interest and tax (EBIT) loss of nearly Rs 100 crore.
If it goes through, the deal will be positive for Zee with fund inflow of nearly Rs 2,000 crore and exit from a loss making business. Sony, on the other hand, will get additional channels in its Sports bouquet to compete with Star India.
When contacted by CNBC-TV18, Zee said the company keeps exploring strategic opportunities to enter new businesses but as a matter of policy they would not comment on media speculations.
Commenting on the deal, Abneesh Roy of Edelweiss Securities told CNBC-TV18 while it looks beneficial for Zee in the short term as it would be rid of the loss-making business, in the longer run it might prove negative as they will have nothing in the sports category which is also important.
"Even though loss-making, Ten Sports contributed roughly Rs 500-600 crore in revenue," Roy noted.
He is positive on Zee not just because the deal will prove earnings per share accretive but also because the base business has picked up and Zee has been far better than competitors in terms of execution and advertising revenues.
Below is the transcript of Abneesh Roy's interview to Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: Your thoughts on Zee's current price, the way the market has shot up already.
A: We remain positive on Zee irrespective of this deal. This business is loss-making for Zee currently. So, definitely there will be a positive impact on the earnings per share (EPS) both this year and next year. Zee has been guiding at around Rs 100 crore loss for this year although they delivered a pleasant surprise in terms of profit in the first quarter. So, if this sports business gets sold there will be Rs 100 crore positive impact on the earnings before interest, taxes, depreciation and amortisation (EBITDA), but from a longer-term perspective, it might be a bit negative for Zee, because if the suspicion clearly sports as a business also is very important. So, essentially, in India what will happen is there will be Star which has got lion's market share of cricket and most other properties and now, Sony also, because of the tie-up will also start becoming relevant. So, they do have IPLs which goes in the bedding next year and then they have the tie-up with ESPN. So, we will have two strong players and Zee not being in sports from a longer term perspective is slightly negative.
Sonia: To come back to the point about Sony, what would Sony want to pay Rs 2,000 crore for such a loss-making business?
A: Zee has got many important rights. Obviously, those rights are of relevance to Sony as they want to ramp up. They do have IPL as the sole important rights. They have other smaller rights, but Zee, if you see, has got many important properties like WWE which is very strong viewership. After cricket, it is one of the largest. So, apart from this, India's cricket matches with West Indies, Sri Lanka, Zimbabwe, South Africa, Pakistan. Those rights are also there. So it is a loss making business but it does Rs 500-600 crore of revenue. So, when you are competing with Star, you would need a stronger bouquet. So, that is the whole game plan. Sony, ESPN will not be looking at that small Rs 100 crore loss, they will be looking at how to fight Star which has got most of the cricket rights, most of the other rights also.
Sonia: So when you look at it from a Zee Entertainment point of view, the stock has already risen about 50 percent in the last six months. How much of this news, do you think is already in the price?
A: Zee is doing much better in terms of execution versus the industry. If you see industry is growing more like 13-14 percent ad-growth but Zee in most quarters is growing well ahead of that. So, they are doing well in regional, most of the channels and the flagship also the &TV is doing well. So, it is not because of this cricket sports even getting sold. That is not the reason why Zee has traded strongly, it is basically the base business doing quite well. So, we remain positive on Zee Entertainment. Our target price is around Rs 46 so there will be upgrade to the EPS because of the losses coming down. But, we remain positive on Zee.
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