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Zee Entertainment will be taking over the media business of group firm Diligent Media Corporation with effect from March next year.
According to the scheme, Zee will be issuing one preference share for every four equity shares held by DMCL shareholders, resulting in an issue of 22.3 million redeemable non-convertible preference shares of Rs 1 a share.
The preference shares would be issued for three years with a coupon rate of six per cent. The transaction would benefit Zee in terms of tax benefits and channel licence, say analysts.
According to them, Zee Entertainment is getting a bonanza by investing with only Rs 2.23 crore as outlay and benefiting from about Rs 300 crore in terms of income tax benefits and other assets of DMCL.
“The tax savings would lead to improved profit after tax (PAT) margins and higher earnings per share (EPS) for the shareholders of Zee Entertainment,” said an analyst with ICICI Securities.
The demerged business of DMCL consists of media and entertainment business, event management activities, TV channel licence and TV reality shows formats for game-based shows.Reacting to the news, the share price of Zee shot up to touch its 14-year high of Rs 285 a share on Tuesday.
In May this year, Zee Entertainment had announced distribution of Rs 2,000 crore to its shareholders through a bonus issue, on completion of 20 years in the business. This scheme is expected to get the court’s nod by this weekend.
But analysts say the Zee bonus issue was structured in a complex way keeping the interests of long-term investors in mind. The company has declared a bonus issue of 21 redeemable preference shares of Rs 1 each, for every equity share of Rs 1 each held in the company. The redeemable preference shares will carry an interest of 6 per cent payable annually.
According to the scheme announced in May, the existing shareholders of Zee will get 21 redeemable preference shares for each equity share held. The value of redeemable preference shares is seen at Rs 21, as the current face value of the share is Rs 1. The shareholders can realise the value only when the redeemable preference shares get listed on exchanges. These redeemable preference shares will not be eligible for any dividends, which will be announced by the company or any voting rights.
