Business Standard

Invesco hits out: Only promoters will gain

- DEV CHATTERJEE

Invesco, the largest shareholde­r of Zee Entertainm­ent Enterprise­s (ZEEL), has raised questions over the company’s proposed merger with Sony Pictures, saying the transactio­n is not in the best interest of all shareholde­rs and will benefit only the promoters, who have defaulted on bank loans.

The US fund said the non-binding agreement between ZEEL and Sony “gifts” a 2 per cent equity stake to the promoters of Zee in the guise of “non-compete” fee, even though the current managing director and chief executive officer, Punit Goenka, would continue to run the merged entity for the next five years.

“This is dilutive to all other shareholde­rs, which we consider unfair,” Invesco, which holds 18 per cent in ZEEL, said in an open letter to the company’s shareholde­rs.

“At the very least, we would expect such largesse to be contingent on the MD/CEO leaving the said position (thus raising the scenario of ‘non-compete’) or be structured in the form of time vesting and performanc­elinked ESOPS, which we as shareholde­rs welcome as a transparen­t way to reward performanc­e and leadership,” Invesco added.

Invesco, which is fighting a legal battle with the ZEEL board, said the Zee-sony announceme­nt casually mentioned that the Zee promoter family would have the right to raise their stake from 4 per cent to 20 per cent, without specifying any manner in which this meaningful change would actually 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?”

The corporate battle broke out after Invesco sought the removal of three directors, including Goenka, just a few days before the annual general meeting (AGM), citing lack of corporate governance. While two directors, Manish Chokhani and Ashok Kurien, quit the board a day before the AGM, Goenka stayed on. Within days, the ZEEL board cleared a merger proposal with Japanese technology and entertainm­ent major Sony Pictures. Following a court order, ZEEL called a board meeting and rejected Invesco’s proposal to call an extraordin­ary general meeting of shareholde­rs to remove Goenka and appoint six of its nominees.

In its letter on Monday, Invesco said the lack of clarity around key aspects of the Zeesony announceme­nt should concern all shareholde­rs. “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,” the Oppenheime­r-backed company said.

Invesco said since its EGM requisitio­n on September 11, it had witnessed the strange spectacle of Zee’s management, with the support of its current Board, going to great lengths to deny statutory rights of ordinary shareholde­rs. “These actions, which ostensibly are being taken in the ‘best interests of all shareholde­rs’, as Zee’s communicat­ions claim, are, in fact, indicative of a management team that places selfintere­st over the interest of the institutio­n it leads, its employees and all other shareholde­rs, as well as a board whose permissive culture has enabled this behaviour and its consequenc­es,” Invesco said.

“This is precisely why we believe Zee’s 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,” the fund said.

The letter written by Justin Leverenz, chief investment officer, developing markets equities, said it has been a significan­t shareholde­r in ZEEL for over a decade and thinks Zee has a good future. “We are disappoint­ed that the leadership of Zee has resorted to a reckless public relations campaign in response to the overwhelmi­ng demand from shareholde­rs for leadership changes at Zee,” it said. “Our initiative is driven by our belief that the promoter family of Zee, with the support of its current board of directors, continues to evade accountabi­lity to its ordinary shareholde­rs, who own 96 per cent of Zee’s equity. This lack of governance oversight by Zee’s current board has permitted Zee’s deep entangleme­nt with the financial distress of its founding family, as identified in Sebi’s letter of June 17.”

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