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Wednesday, October 20, 2021

Unjustified, opaque: Invesco on plan to hike Zee promoter stake

“It is concerning that the current terms of the Sony-Zee announcement gift additional 2 per cent equity to the founding family via a non-compete that seems entirely unjustified, while also providing a pathway for the founding family to raise its stake from 4 per cent to 20 per cent via methods that remain wholly opaque,” Invesco said.

Written by George Mathew | Mumbai |
October 12, 2021 4:09:32 am
Zee Entertainment Enterprises Ltd (ZEEL) (File Photo)

Invesco Developing Markets Fund, ZEEL’s largest shareholder with an ownership interest of nearly 18 per cent, has questioned the merger proposal of the company with Sony stating that the move is against the interest of 96 per cent of the shareholders. In an open letter to Zee Entertainment Enterprises (ZEEL) shareholders, Invesco said the proposal to “gift” two per cent equity to the promoters’ family and eventually raise the stake to 20 per cent is “unjustified” and “opaque”.

“It is concerning that the current terms of the Sony-Zee announcement gift additional 2 per cent equity to the founding family via a non-compete that seems entirely unjustified, while also providing a pathway for the founding family to raise its stake from 4 per cent to 20 per cent via methods that remain wholly opaque,” Invesco said.

“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,” the letter added.

Explained

Tussle for Zee Entertainment Enterprises

The battle for Zee Entertainment Enterprises is expected to intensify with both Invesco and Zee board upping the ante. Zee board had recently rejected the demand of Invesco to convene an extraordinary general meeting (EGM) for the removal of managing director (MD) and appoint six new directors.

Invesco said 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, who robustly debate vital decisions and who serve as guardians of all shareholder interests. Strategic alignments are welcome but must be fair to all shareholders.”

Weak governance and a permissive board have enabled Zee’s growing entanglement with the financial distress of the founding family, Invesco said, adding, “This has brought extraordinary reputational damage and regulatory rebuke to Zee. Recent actions of Zee’s leadership and the board further confirm a deep apathy to shareholder rights.”

“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. As long-term investors and stewards of investor capital, the Invesco Developing Markets team takes its fiduciary duty very seriously and is committed to acting in the best interest of clients and shareholders,” said Justin Leverenz, chief investment officer, developing markets equities, Invesco.

The National Company Law Tribunal (NCLT), last week, directed ZEEL to file its reply by October 22 to a petition moved by Invesco Developing Markets Funds to remove current MD and CEO Punit Goenka and appoint six of its directors on the company’s board through the EGM.

“Since the EGM demand, Zee’s management and Board have gone to great lengths to deny a basic shareholder right enshrined in Indian law,” the Invesco letter says.

A better governed Zee would be substantially more valuable on its own. However, strategic alignments that help build a stronger media platform are also welcome, Invesco said.

On the eve of Invesco’s EGM requisition on September 11, stock market indices had more than doubled in the preceding five years, while Zee’s stock had more than halved in the same period. “The 40 per cent stock increase in response to the EGM requisition action indicates years of frustration among shareholders and an appetite for change,” Invesco said. The ZEEL board rejected Invesco’s demand to convene the EGM. “The board has arrived at a conclusion that the requisition is invalid and illegal and has accordingly conveyed its inability to convene the EGM,” it said in a filing.

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