Major Shareholder Invesco Refuses To Yield To Zee, Calls For EGM

Zee Entertainment’s shareholder Invesco has insisted on continuing with the plans for an Extraordinary General Meeting, before Zee advances its deal with Sony India.

The move comes days after Zee had secured an in-principle approval from its board for a merger with Sony India. Post-merger, the company would have revenues of around Rs 14,000 crore and would control a quarter of the market.

The merger would also see cash being infused into the merged entity, by the parent company Sony. The post-merger entity would hold cash of around $ 1.57 billion.

Zee’s shareholders would hold 47 per cent of the shares in the company whereas the balance would be held by Sony India’s shareholders.

For the Goenkas, who have management control over Zee, the decision to merge with Sony would help them secure their position.

Invesco had written a letter to Zee’s Board on September 11 asking for the removal of two board members, Ashok Kurien and Manish Chokhani, along with the current managing director Puneet Goenka.

Investors had been disappointed by Zee over the past two years as the company had several corporate governance lapses. Some of these issues like the non-payment of dues by Dish TV and Siti Cable which are related parties have been highlighted by shareholders for a long time.

Even proxy advisory firms had asked shareholders to vote against the reappointment of Punit Goenka and other board members as they had failed to take responsibility for the problems plaguing Zee.

Invesco and Oppenheimer had bought out the Goenkas’ stake in Zee when the promoter group was undergoing a debt crisis. The promoters’ stake fell to 4 per cent as a result of the transaction.

However, today, two of Zee’s largest shareholders do not have any confidence in the management.

Just 11 days later, on September 22, Sony India came in as a white knight for the Essel Group. Investors expected Invesco to give up on its fight against the promoters.

Far from it, the move seems to have added fuel to fire.

“Decisions of material strategic import must follow and not precede actions towards establishment of a proper and independent governance structure as determined by the company’s shareholders. In this context, and against the backdrop of our EGM requisition, your disclosure of September 22 is symptomatic of the erratic manner in which important and serious decisions have been handled at the company,” Invesco said in its letter.

Quite clearly, Invesco still wants to go ahead with the Extraordinary General Meeting and hopes to create a genuinely independent board. It has already nominated six members for the position — Surendra Singh Sirohi, Naina Krishna Murthy, Rohan Dhamija, Aruna Sharma, Srinivasa Rao Adepalli and Gaurav Mehta.

In recent years, India has seen several cases of shareholder activism, especially in relation to promoter remuneration and related party transactions.

Eicher’s shareholders had rejected promoter Siddhartha Lal’s salary hike as the company’s performance had been lacklustre. While Invesco has not yet revealed its exact problems with Zee, it is believed by experts that Puneet Goenka’s salary increase in the time of a slowdown is also responsible for the investor ire.

Institutional investors have quit their roles as neutral spectators and have begun to stand up for shareholder rights. The establishment of institutional investor advisory companies has also helped investors make smarter decisions.

Whichever side wins, shareholders have been beneficiaries of the shareholder activism initiative. The stock has almost doubled with a fortnight, yet over the long term, the stock has destroyed shareholder value.

Zee Entertainment’s stock has fallen 40 per cent on an absolute basis while the BSE Sensex doubled during the same period.