punishes goenka: twists and turns in the Sony-ZEE Merger saga; Invesco remains firm on the withdrawal of Punit Goenka


Invesco, the world’s largest investor (ZEE), reiterated its call for an extraordinary general meeting (EGM) to discuss the ouster of three directors and the inclusion of six independent board members, signaling that the fight for control continues. This follows ZEE’s management announcement of a planned merger with Sony Pictures Networks India (SPN) which will see the latter take majority control while leaving Managing Director and CEO Punit Goenka in charge.

Invesco had requested the removal of Goenka along with two other directors. These two directors resigned before the Annual General Meeting (AGM) on September 14.

The announcement of the non-binding merger pact on Wednesday underscores the case for changing Invesco, he said in a September 23 memo to ZEE’s board of directors. Invesco said it first requested an EGM to discuss the directors issue on September 11.

“Your September 22, 2021 disclosure is symptomatic of the erratic way in which important and serious decisions have been handled in the business,” Invesco said in the letter, which ET saw. “It is precisely to protect shareholder value and in exercising our statutory rights as an ordinary shareholder, we have requested the company to hold an EGM, and it is your duty under company law to do it now. ”

A spokesperson for ZEE said the board is seized of the matter and the company will take necessary action in accordance with applicable law.

Invesco did not respond to questions.

Invesco, which owns a 17.88% stake in ZEE, said that “decisions of strategic importance must follow and not precede actions to establish an appropriate and independent governance structure as determined by the shareholders of the company”.

ZEE and SPN, a resigned subsidiary of Sony Corp, announced the signing of exclusive, non-binding terms of reference for a proposed merger of the two companies on September 22, which would create India’s second largest entertainment network in terms of income if it took place. Goenka, who was leading the merger talks, will remain the company’s chief executive and CEO for at least five years under the deal. Goenka is the son of ZEE founder Subhash Chandra; the promoters hold a 3.99% stake in ZEE.

“A newly formed board backed by the strength of independence will be best suited to assess and oversee the potential for strategic transactions… as well as to make decisions on the future direction of the business,” said Invesco.

A senior partner at a law firm said that while ZEE’s board will have to assess the case and take an appeal, it was surprising that Invesco was considering removing someone who has been backed by the majority investor proposed.

“We have to seriously ask ourselves what are the motives and intentions of Invesco behind the measures it is taking,” he said. “At the end of the day, if it’s an EGM, shareholders will have two options. Either vote to keep Punit on the board that has been running the company for so long and who will drive the merger and create value for them, or remove him without any viable alternative plan, which will surely derail the merger and most likely erode the value of the business.

Experts said a merger would unlock shareholder value and investors should support the plan.

“A change of management could have an impact on the negotiations and the implementation of the proposed merger with Sony. If shareholders want the merger, they might be reluctant to shake things up at this point, ”said Sudip Mahaptra, partner at S&R Associate.

Proxy advisory firm InGovern Research, which previously raised concerns about corporate governance at ZEE, said there was nothing wrong with CEOs entering into merger talks and then moving on. address to shareholders for a vote.

“Invesco did not have an alternative plan and therefore it would be surprising if it did not support this merger. As a fund, Invesco would be interested in financial returns and clean governance. With Sony as the majority shareholder and a likely reconstituted board of directors, the merged entity would be the best solution Invesco could have hoped for. Also, Invesco may well withdraw its EGM call, ”he said in a series of tweets on Wednesday.

InGovern added that Goenka’s abilities as CEO of a leading media company were not in question. “Invesco was unhappy with the governance of ZEE due to the problems encountered by the companies in the group. Thus, Punit Goenka as the proposed CEO of the merged entity should not be a concern, ”he said.

The proposed new independent directors are Surendra Singh Sirohi (independent director, HFCL); Naina Krishna Murthy (founder and managing partner of K Law); Rohan Dhamija (Senior Partner, Analysys Mason); Aruna Sharma (Independent Director, Welspun Enterprises and Jindal Steel); Srinivasa Rao Addepalli (Independent Director, Tata Communications Payment Solutions); and Gaurav Mehta (Head of India, The Raine Group).

“These six additional independent directors come from diverse backgrounds and are expected to bring additional professionalism, guidance and governance standards to the operations of the company,” said Invesco. “With the existing set of independent directors, we believe the board of directors of the company will have the depth to lead the company into the future.”

Some investors said those proposed by Invesco did not have media and technology experience, and some did not have significant experience serving on the boards of publicly traded entities.

Analysts said the merger will have a positive impact on ZEE because there are more areas of synergy than there are overlaps. They said the combined entity will have an after-tax profit (PAT) of around Rs 3,100 crore, a price-earnings multiple of 16x-17x and a market cap of Rs 50,000-60,000 crore.

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