From RIL to Sony: What we know about the big Zee-Invesco fight so far

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NEW DELHI: Zee Entertainment has been embroiled in an ugly legal fight with its largest foreign investor Invesco, after the latter called for the removal of the television station’s chief executive, Punit Goenka, citing concerns about the entity’s corporate governance and financial performance.
Goenka is the son of the billionaire Subhash Chandra who built Zee’s television empire from scratch. Invesco wants to reform Zee’s board of directors, but Zee has challenged the restructuring attempt in court, claiming that the US investor is trying to take over the broadcaster. Zee has also started merger talks with Sony Pictures Networks India, but Invesco has raised concerns about the proposed $ 1.6 billion acquisition in a case of foreign shareholder activism.
And two days before Monday, Invesco, the largest shareholder with an 18 percent stake, in a letter to shareholders said the terms of the Sony-Zee merger revealed last month appeared to favor the group’s founding family, which owns only 4 percent. of share capital, at the expense of other investors.
To understand this context, let’s go back to the beginning:
Subhash Chandra had founded and owned the majority of Zee Entertainment through the Essel Group in 1992. Zee TV It is the second largest media company in India and operates 79 channels with an audience of 1.3 billion. But things went awry in 2018 when Chandra made big bets on infrastructure. Even as Zee was minting money, its parent company, Essel, was betting big on the infrastructure landscape, borrowing large sums to fund troubled extravagant projects. But the big loans were made by offering Zee’s shares as collateral. Chandra at the time controlled a 41% stake in Zee Entertainment Enterprise, but put half of its shares in the block to fund this infrastructure dream.
After the sudden collapse of IL&FS Group in 2018, a large infrastructure financier, the credit markets froze for Chandra and he was left with the accumulation of bad loans amounting to Rs 13,000 crore. When Essel Group defaulted, some lenders began selling Zee shares. The share price was hit and plummeted 30%. So not only did media stocks take a beating, but the collateral’s value began to fall.
Chandra had no choice but to agree to pay Essel’s creditors and the rescuer Invesco-Oppenheimer entered, without whom Chandra could not have supported himself. Chandra was left with no choice but to sell a significant portion of her stake in Zee Entertainment to the Invesco Oppenheimer Developing Market funds, which later became the company’s largest shareholder. In 2019, the global fund acquired an 11% stake in Zee for Rs 42,240 crore, bringing its stake to almost 18%. The first batch of 7.74 percent was collected in 2002. Chandra’s share fell from 41.6% to less than 5%. He had to resign from the board as chairman even though his son Punit Goenka was still the CEO.
But a year later, after the shutdown was announced, Zee shares fell 68% to Rs 128 when advertisers’ revenue dried up, while Invesco’s investment value fell 55% in September 2020. Other investors were not very happy and had lost faith in the developer. family after the 2019 debacle. “The company has been frequently in the news on charges of tax evasion, diversion of funds to various promoters and other corporate governance issues that has not bode well for institutional investors.” reports Fortune.
On September 13, 2020, two of the non-executive members of the ZEE board of directors, Ashok Kurien and Manish Chokhani, resigned from rumors that they were involved in insider trading. The next day, Invesco requested an EGM to remove Punit and suggested the appointment of six independent directors. They wanted shareholders to vote on Goenka’s removal and a board review due to concerns about financial performance and corporate governance. But Zee rejected Invesco’s demand for an EGM and filed a 420-page lawsuit with the Bombay High Court to decide whether Invesco’s demands are valid.
Eleven days after Invesco requested the board’s review, Zee announced a merger with Sony in which the latter would pay $ 1.6 billion for a 53% stake in the new entity, Chandra’s family would increase their stake to 20%. and Goenka would remain as CEO. While Invesco said it is not against the deal, Zee rejected its request to renew the board, after which Invesco took the battle to the companies court, where it is trying to force Zee to convene the meeting, saying the behavior Zee’s is “oppressive”. . On the other hand, Chandra on prime-time television accused Invesco of “trying to seize Zee clandestinely” and fueled nationalist sentiment.
“Zee is not just a business. It is part of the lives of millions of Indians … Zee does not belong to me, it is not owned by Invesco, and neither should they behave as owners. The Zee network belongs to the 250,000 shareholders and people of 90 million rupees tune in to watch it every day. ” He added that he will not allow the US fund manager to succeed in its effort to seize control of Zee.
Following this uproar, Invesco sent a letter to Zee shareholders claiming that the terms of the Sony-Zee merger only favored the founding family of the group, which owns only 4% of the share capital, at the expense of other investors.
“We are disappointed that Zee’s leadership has resorted to a reckless public relations campaign in response to overwhelming demand from shareholders for leadership changes at Zee … These actions and rhetoric are aimed at avoiding true liability for lapses. governance and shareholder value destruction that has presided over the current leadership and the Board. We are calling on Zee shareholders to join us in asking why the founding family, which owns less than 4% of the company’s shares, should benefit at the expense of investors who own the remaining 96%. ”
He reiterated that any Zee deal with Sony Pictures Networks India or other potential partners should be considered by a new independent board, as Zee was “a highly undervalued asset, mired in innuendo and financial volatility … We will strongly oppose any structure of strategic arrangements that unfairly reward selected shareholders, such as the promoter family, at the expense of other shareholders. ”
Invesco also said that it considers Sony’s non-binding proposal “to be nothing more than camouflage by Zee to divert and distract attention from the main problem facing the company.” And industry experts agree that the deal is a non-binding term sheet between the two entities, with a 90-day negotiation period during which Zee and Sony will conduct mutual due diligence, which means that the deal could also be canceled.
Invesco’s letter resulted in Punit Goenka crying and writing another letter to shareholders. He claimed that the real reason for Invesco’s fury with the Sony deal is that Punit had rejected a merger proposal in February on behalf of a rival company, part of a larger India. business group, which, if accepted, would have resulted in a loss of Rs 10 billion for the company’s shareholders.
The merger agreement was presented by representatives of Invesco, Aroon Balani and Bhavtosh Vajpayee. Turns out, this huge media conglomerate was none other than Reliance Industries. Under Invesco’s proposal, the strategic partner was to have a majority stake in the merged entity and Goenka was offered to remain CEO and CEO.
In a statement Wednesday, RIL revealed that it was in talks to acquire ZEEL, but did not go ahead with the transaction after talks between Invesco and Zee’s promoters broke down. He added that he respects all founders and has never resorted to hostile transactions in the past and therefore did not go ahead.





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