Zee Entertainment Enterprises Ltd's largest shareholder, Invesco is seeking to rally around other non-promoter shareholders of the company for change of management, saying it is worried the firm's deal with Sony will enrich the Chandra family at cost of shareholders.
In an open letter to Zee's shareholders, Invesco, which holds a 7.74 per cent stake in the firm, reiterated its demand for an overhaul of the media group's board and that it would pursue extraordinary general meeting (EGM) to oust chief executive Punit Goenka and two other directors.
Last month, Sony Group Corp's India unit signed a non-binding offer to buy Zee.
In the proposed deal, about 53 per cent of the merged entity would be owned by Sony India shareholders and the rest by Zee's.
Raising questions over the merger, Invesco said the announcement to gift additional 2 per cent equity to the founding family via a non-compete clause seems entirely unjustified, and also providing a pathway for the founding family to raise its stake from 4 per cent to 20 per cent in the merged entity via methods remains wholly opaque.
"This is dilutive to all other shareholders, which we consider unfair. At the very least, we would expect such largess to be contingent on the MD/CEO leaving said position (thus raising the scenario of “non-compete”) or be structured in the form of time vesting and performance linked ESOPs, which we as shareholders welcome as a transparent way to reward performance and leadership," the letter said.
The investment firm also expressed its resolve to pursue extraordinary general meeting (EGM) to "hold the board and management accountable and effect necessary change at Zee".
"Zee needs a demarcation between the promoter family and the institution.
"Its board needs to be strengthened with independent directors who take their jobs seriously,” said Invesco.
Promoter Subash Chandra's family presently holds around 4 per cent stake in Zee Entertainment Enterprises Ltd (ZEEL) and as per the merger announced with the Sony Picture Networks India (SPNI), it would be reduced to 2 per cent in the merged entity.
However, ZEEL promoters would get 2 per cent additional stake in merged entity for non-compete clause taking it back again to 4 per cent, which could be later extended up to 20 per cent.
Over the proposed merger with SPNI, the minority shareholder said strategic alignments are welcome but must be fair to all shareholders.
“Any transaction will be evaluated in a constructive spirit if and when full details are made available,” it said.
Invesco along with OFI Global China Fund LLC holds a 17.88 per cent stake in ZEEL, and has been pressing for an EGM to discuss various issues, including the removal of managing director Punit Goenka and appointing its nominees to the board.
Goenka would also lead the merged entity as Managing Director for five years.
Quoting its chief investment officer, Developing Markets Equities Justin Leverenz, Invesco in a statement said it is a significant shareholder in ZEEL for over a decade and the entertainment major has “depth of talent” which gives them a conviction that if the company were properly managed, it had the potential for tremendous growth.
However, it is “disappointed that the leadership of Zee has resorted to a reckless public relations campaign in response to the overwhelming demand from shareholders for leadership changes at Zee.”
“These actions and rhetoric are aimed at avoiding true accountability for the governance lapses and shareholder value destruction that the current leadership and board have presided over.
"We are calling on Zee shareholders to join us in asking why the founding family, which holds under 4 per cent of the company's shares, should benefit at the expense of the investors who hold the remaining 96 per cent,” he added.
Sharing the highlights of the letter, Invesco said ZEEL's incumbent board and management have “demonstrably destroyed shareholder value”.
“Weak governance and a permissive board have enabled Zee's growing entanglement with the financial distress of the founding family.
"This has brought extraordinary reputational damage and regulatory rebuke to Zee,” it said.
Moreover, recent actions of Zee's leadership and board further confirm a deep apathy to shareholder rights.
“A reckless and desperate public relations effort on the part of Zee's founding family aims to deflect from the core of the issue to Zee,” it said.
Last week, ZEE chairman emeritus Subhash Chandra had asked minority shareholder Invesco to make an open offer to 75 per cent of shareholders and take over the company if it wants.
Chandra had also accused Invesco and OFI Global China Fund - of indulging in a "clear cut case of a takeover by a company in a clandestine manner".
Terming it an "illegal step being taken by Invesco" the media doyen had said, "This is insider trading and a takeover".
On October 8, the Mumbai Bench of NCLT gave ZEEL time till October 22 to file its reply to a plea by Invesco.
The order has come after the appellate tribunal NCLAT ordered the NCLT to give the media major reasonable opportunity to do the same.
The board of ZEEL had on October 1, 2021 rejected the minority shareholder's demand and termed the requisition "invalid and illegal".
Goenka is the son of Zee Founder and Chairman of Essel Group Subhash Chandra.
Last month, ZEEL and Sony Pictures Networks India (SPNI) had announced their mergers, which will create the country's largest media company.
The merged entity, in which SPNI's parent company Sony Pictures Entertainment would infuse $1.575 billion, will be a public listed company in India.
Photograph: Francis Mascarenhas/Reuters