Invesco raises concern aboutZee-Sonymerger
Invesco claims some of Sony’s terms favour the promoters over ordinary shareholders
MUMBAI: Invesco Developing Markets Fund, the largest shareholder of Zee Entertainment Enterprises Ltd, has expressed concern about some of the terms of Sony Pictures Networks India’s proposed purchase of Zee, which the investor claims favour the promoters over ordinary shareholders.
In an open letter to Zee shareholders, Invesco questioned the rationale for Sony agreeing to pay 2% additional equity as a non-compete fee to promoter Subhash Chandra’s family when his son, managing director Punit Goenka, will continue to run the entity for five years from the completion of the acquisition.
“This is dilutive to all other shareholders, which we consider unfair. At the very least, we would expect such largess to be contingent on the MD/CEO leaving said position (thus raising the scenario of non-compete) or be structured in the form of time vesting and performance-linked ESOPs, which we as shareholders welcome as a transparent way to reward performance and leadership,” Invesco said in the letter.
Invesco, which is in the midst of a legal battle with Zee, said the Zee-Sony announcement casually mentions that the Zee promoter family will have the right to raise its stake from 4% to 20%, without specifying how this change will happen.
“Will this change the majority control of Sony in the merged entity? Will it involve open market purchases, warrants, or some other financial instrument? If the latter, will the said instruments/warrants to the promoter family be priced so as to advantage them at the cost of ordinary shareholders?” Invesco asked.
This lack of clarity around key aspects of the Zee-Sony announcement should concern all shareholders, it said.
“We will gladly evaluate the transaction in a constructive spirit if and when additional information is made available. However, we have also noted the timing of this announcement and its non-binding nature. As a result, we currently consider it to be no more than camouflage on the part of Zee to divert and distract from the primary issues before the company,” it said.
Invesco also reiterated its demand to strengthen Zee’s board with independent directors who will act in the interest of shareholders.
The investment firm has asked Zee to convene a shareholders’ meeting to decide on ousting Goenka and inducting six new directors.
The new board can then appoint an investment bank to evaluate all proposals for strategic deals, including the Sony proposal in its current or any revised format.
“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 at Invesco.