The Zee Entertainment Enterprises Ltd. board of directors has raised questions about the governance standards of its largest institutional shareholder—Invesco Developing Markets Fund. It has specifically criticised the U.S.-based institutional investor for not disclosing that it was negotiating a deal on behalf of the company without any authority.
“It’s only after the company’s disclosure that Invesco has felt the need to reveal the name of the Strategic Group in a press statement and has further underplayed their role in negotiations of the proposed deal as being merely facilitative,” as per the board statement filed with stock exchanges.
The strategic group referred to here is Reliance Industries Ltd.
Recent disclosures by Zee Entertainment’s Managing Director and Chief Executive Officer Punit Goenka, as well as Invesco and then Reliance, have shown that in February and March this year the three were in talks to merge Zee Entertainment with media entities of Reliance.
The disclosures show that Invesco facilitated or assisted Reliance in arranging discussions with Punit Goenka, also son of Zee promoter Subhash Chandra, though the promoter stake has now dwindled to 3.99%.
The merger talks didn’t progress due to differences between Invesco and Goenka, all sides claimed. Goenka said there were valuation differences. Reliance’s statement says Invesco did not agree with Goenka’s offer to increase promoter stake increase via subscribing to preferential warrants.
These revelations have turned what started out as a shareholder versus board dispute into a takeover battle of sorts.
Since early September, Invesco, and an affiliate fund OFI Global China Fund, together owning 17.88% in Zee Entertainment, sought an extraordinary general meeting of the company’s shareholders to vote on ousting Punit Goenka and appointing six new independent directors. Invesco’s stated reasons for this so far have pertained to the company’s financial performance and corporate governance concerns.
The Zee board has stood behind Goenka and rejected Invesco’s EGM requisition, saying it was invalid.
While the matter is already in court, Invesco wrote an open letter to Zee Entertainment’s shareholders regarding the EGM requisition and concerns around the company’s proposed merger with Sony, which announced in the middle of this brouhaha. The foreign fund stated it would continue with its battle to revamp the board.
The Zee board has on Wednesday responded to Invesco’s open letter by making the following points:
Invesco should stop publishing “half truths” about proposed Sony deal.
Non compete fee to Zee promoters in Sony deal is a secondary transfer and will not be dilutive to public shareholders.
Quantum of promoter shareholding in Sony deal is less than in Reliance deal proposed by Invesco.
Zee promoter is “free to” raise stake in merged entity. There’s no right provided to the promoters and hence no method specified.
Invesco refers to SEBI’s advisory letter but doesn’t also acknowledge that the company has taken corrective measures.
Despite Invesco being fully aware of all the above matters, it chose to vote in favour of the reappointment of Punit Goenka as managing director and chief executive officer in September 2020.
Invesco didn’t disclose they were negotiating a deal on behalf of the company without any authority.
Invesco has cast unsubstantiated aspersions on the company and board.
Five of six existing independent directors on the board were appointed after Invesco’s investment in 2019.
Invesco’s actions are motivated by concerns entirely extraneous to any corporate governance issue.