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ZEEL-ETC merger: Consolidation to drive efficiency

By Rahul Sharma , afaqs!, New Delhi | In Media Publishing | December 24, 2009
After the merger of ETC Networks with Zee Entertainment Enterprises Limited, all the entertainment channels of the group will be under one company

The latest move by the board of directors of Zee Entertainment Enterprises Limited (ZEEL), is granting an in-principle approval to merge ETC Networks Limited with ZEEL. This is part of the consolidation drive that the company embarked upon this year.

Earlier in October, a similar restructuring exercise was carried out between ZEEL and Zee News Limited. "It is a process of consolidation that will result in efficient management and create more value for shareholders. Through this, we will be able to capture growth in a better manner," says Atul Das, executive vice-president, corporate strategy and business development, ZEEL.

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ZEEL holds a 50.18 per cent stake in ETC Networks. ETC has broadly two businesses, broadcasting and education. Of these, the broadcasting business - which comprises a Hindi music channel, etc Music, and a regional GEC, etc Punjabi - will be merged with ZEEL.

The education business, which consists of products such as Kids Zee and Zee Institute of Media Arts, will be hived off into a separate company. While the broadcasting business generated Rs. 41.50 crore in revenues in FY 2009, ETC earned Rs 25.10 crore in revenues from the education business.

"The merger will add to the topline of ZEEL; and since there will be synergy in operations, it will result in greater operational efficiency," says Rohit Maheshwari, research associate at KR Choksey Securities. Post merger, there will be a common workforce and there might be redeployment in certain areas. Das agrees that the move will drive efficiency, but adds that it is difficult to quantify it right now.

The company has not announced the swap ratio for the merger. The board will appoint an independent valuer to suggest this. The entire process of demerger will take around five to six months, adds Das. In the case of the demerger of the regional entertainment division of Zee News Limited, for every 19 shares of the company, shareholders got four shares of Zee Entertainment Enterprises.

After the merger, ETC Networks will cease to exist; and the company that will have the education business of ETC is likely to be listed around April 2010. Das adds that the interests of Zee's shareholders will be taken care of - they will have a similar kind of holding, like they had in the case of ETC, in the new company.

The two channels of ETC will retain their brand identity. Earlier, Zee had properties in the same genre as etc Music and etc Punjabi. But Zee Music, which was a pure music channel, was rebranded earlier this year as a lifestyle cum music channel, Zing. Zee Punjabi is now a news channel under Zee News Limited.

On Wednesday, the share price of ETC Networks fell 10.25 per cent in day trade and the stock closed at Rs. 200.55 on the Bombay Stock Exchange. ZEEL stock also went down, although marginally. The stock closed at Rs. 265.05, down 0.75 percent from the previous day's closing price.