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ZEE-Sony merger in limbo as Invesco digs in with EGM demand. What’s next?


NEW DELHI: Invesco, ZEE Entertainment’s largest shareholder, is not in a mood to back off from its demand for an extraordinary general meeting (EGM) for a recast of the board, including the ouster of MD & CEO Puneet Goenka.

ZEE last week said Goenka’s appointment is an ‘integral part’ of the merger deal with Sony Pictures announced last week.

Analysts tracking the developments said it seems Invesco, which holds about 18 per cent stake in ZEE, is not averse to the merger deal, but wants the governance issues to be addressed first before ZEE shareholders, under a new board, can consider any strategic deal with Sony.

“Since Puneet was instrumental in initiating the merger talks, this development could throw a spanner in the works of the entire deal,” said Nitin Menon, Co-founder at NV Capital.

In a letter to ZEE, Invesco said decisions on material strategic import must follow, and not precede, actions towards establishment of a proper and independent governance structure.

Independent analyst Ajay Bodke said Invesco’s renewed demand for EGM suggests the largest ZEE shareholder wants a complete break from the previous promoters.

“A global media behemoth taking a majority stake but Goenka staying as MD & CEO for five years and being interested in carrying on day-to-day affairs of the merged entity might have raised the suspicion that there is more to the deal than what meets the eye in terms of the discussion between Sony and the promoters of ZEE,” said Bodke.

He said Invesco does not look opposed to the idea of Sony taking a majority stake, but what it would like is the sequencing of the events.

Invesco wants appointment of six additional independent directors in a “free and democratic manner.” It had earlier sought the removal of three non-independent directors, following which two non-independent directors Ashok Kurien and Manish Chokhani have stepped down.

“Invesco is expressing a lack of confidence in the current promoters. Once the current promoters are ousted and the new board members are inducted, the new board as per its view would decide the direction they want to take the company to. By virtue of being the largest shareholder, Invesco has every right to ask for the induction of its nominees on the board. There is suspicion that this marriage has been sought to be consummated at a lightning speed and there are questions over the motivation behind sewing up such a deal without giving too much weightage to the concerns raised by the largest shareholder,” Bodke said.

Invesco had bought shares in ZEE when things were quite precarious a few years ago, Bodke said, adding that he does not see a reason why its legitimate demand should not be addressed.

Invesco said it wishes the newly constituted board to evaluate and oversee the potential for strategic transactions and that its action is intended to create a healthy long-term future for the company, towards which strengthened governance is a neccessary step.

It said the merger deal announced on September 22 referred to the future board composition at a time when current composition of the board is subject to shareholder vote due to its EGM requisition.

Sandip Sabharwal of asksandipsabharwal.com said if Invesco insists on a rejig, operationally things can get impacted, and that could actually be negative for Invesco.

“It is a strange kind of situation. They were not happy because the stock was not moving. Now that the stock has moved, I think given that Sony will be more in control now, they should be happy ideally,” Sabharwal said.

Menon of NV Capital said the likely scenarios would be a possible truce between both the shareholders for the benefit of the merger, or this could well be played out in the courts.

Given that the institutional ownership is 75 per cent in the company, and the promoter group holds merely 4 per cent, it would be important to build a consensus on the deal, said Motilal Oswal Securities.

Kotak said the new board, if it is the case, would review the final binding offer from Sony and carry out negotiations in the best interest of minority shareholders.

Mohit Saraf, Founder & Managing Partner at SARAF & Partners, said one cannot rule out an event in which even the regulators may not agree to the extra compensation to be paid to the Zee promoter as a non-compete premium, even if the same has been contributed from Sony’s kitty.

The merger deal needs approval from three-fourths or the majority of the overall shareholders to be passed.



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