Zee Entertainment Enterprises Ltd (ZEEL) shares have mostly recovered from their early losses. The shares which slipped to day’s low of Rs 182 recovered to Rs 192.6 per shares in noon deals after the Securities and Exchange Board of India (Sebi) barred promoters Subhash Chandra and Punit Goenka from holding any directorial or key managerial roles in the company.

Sebi has also initiated a detailed investigation into the matter. ZEEL has been instructed to present the Sebi order before its board within seven days from date of the receipt of the orders.

Additionally, Sebi has given Chandra and Goenka a 21-day period to file their replies or objections, if any, in the case.

If the Zee-Sony merger encounters difficulties, there could be potential implications. According to a note from brokerage firm CITI, the proposed merger with Culver Max Entertainment (formerly Sony Pictures Network) is the most significant stock driver.

One of the requirements in the deal is that Goenka should remain the Managing Director and CEO of the merged entity. However, the implications of Sebi’s order need to be clarified. The brokerage firm mentioned that it would continue to monitor the promoters’ response to the Sebi order and any future development in this matter.

Some other brokerages suggest that although the merger may not be called off, it could face significant delays. If the merger does get called off, there could be a downside potential for the stock in the range of 15-20 percent, says Elara.

According to Bloomberg’s consensus of analysts, 22 out of 24 analysts have maintained a ‘buy’ rating on the stock and suggest a potential upside of over 25 percent for Zee Entertainment.

Next course of action:

The next course of action, says Elara Securities, is that Zee Enterprises will likely file an appeal with the Securities Appellate Tribunal (SAT), contesting the Sebi order.

This may happen the next day after a Board Meeting (any likely day/date?) After the hearing, SAT may either grant a stay on the Sebi order or dismiss Zee’s plea. This decision is likely to take place within 24-48 hours after the filing of the appeal.

If a stay is granted, it would further delay the merger, potentially leading to Sony withdrawing from the merger, if Punit Goenka does not step down from the company as a Key Management Person.

In the second scenario, if Zee Entertainment’s plea is dismissed, Sony will proceed with the merger with a new CEO. This would require a change in the merger arrangement or scheme and potentially require an approval from the Ministry of Information and Broadcasting, among others.

The merged entity which may have Sony’s majority stake and board composition and a possibility of professional CEO would decouple the entity from the ongoing legal battles of Zee’s promoters, and give it far more credence, said one analyst on condition of anonymity.

Zee shares were currently trading lower with losses of more than 1 percent on Tuesday at 1.10pm after losing as much as 6 percent in early deals.