Invesco's conduct lacks transparency, says Zee Entertainment

The Zee Entertainment Enterprises (ZEEL) highlighted the lack of transparency in Invesco's conduct saying that in its extraordinary general meeting (EGM) requisition notice and in an open letter later, it did not disclose that it was negotiating a deal on behalf of Zee without any authority.  

"It is only after the company's disclosure that Invesco felt the need to reveal the name of the strategic group in a press statement and has further underplayed their role in negotiations of the proposed deal as being merely facilitative," Zee said.

"We believe Invesco should internally consider their own conduct, including its legality under the laws applicable to Invesco, (which is grossly violative of accepted corporate governance norms) before raising governance concerns in relation to the Zee,"  the company said in a communication to the stock exchanges.

Zee said it is dismayed that in the open letter, Invesco has also cast unsubstantiated aspersions on Zee's management and has made comments in relation to the "permissive culture" of the Board.  

“It would be worth noting here that five out of the six existing independent directors on the board of the company have been appointed after Invesco's investment in 2019 and that Invesco was consulted and their views were positively considered at the time of making such appointments. It is evident that all these directors are highly accomplished in their respective professions and are universally respected dignitaries,” it said.

Zee said its board has to take into account the benefit of all its stakeholders (and not just Invesco). 

“Accordingly, Invesco's actions of the past few weeks, open letters against the company and the board and their general lack of transparency, have given the board reason to believe that their actions are motivated by concerns entirely extraneous to any corporate governance issue,” it said.

On the issue of the non-compete fee raised by Invesco, Zee said the Sony deal contemplates the promoters of Sony becoming the majority shareholders of the merged company, and Sony insisted that the erstwhile promoters of the company do not engage in any competing business with the merged company. 

"In lieu of such non-compete obligations being undertaken by the present promoter group, the promoters of Sony will be transferring approx. 2.11 per cent shares in the merged company to the promoter group. “We would like to highlight here that this will be a secondary transfer from the promoters of Sony (not a primary issuance) and, accordingly, will not be dilutive to any of the shareholders of the company as it is a private arrangement between two shareholders,” it said.

Zee said it was informed by Punit Goenka, MD & CEO of the company, that in February 2021, he was approached with another deal by Invesco. "We have been informed that in the deal proposed by Invesco, the promoter group of the company was being offered 3.99 per cent shareholding of the merged entity i.e. no dilution in the existing stake of the promoter group of the company, and Goenka was further offered employee stock options (ESOPs) (with no vesting conditions), representing approx. 4 per cent of the shareholding of the merged entity," it said.

Accordingly, the existing promoter group of the company along with Goenka would have held up to 7-8 per cent in the merged entity. 

“’As such, we believe that Invesco's stance in their open letter that they "will firmly oppose any strategic deal structure that unfairly rewards select shareholders, such as the promoter family, at the expense of ordinary shareholders", runs contrary to the very deal Invesco was itself proposing only a few months ago,” Zee said.

By way of comparison, the quantum of shareholding proposed to be transferred to the promoter group in the Sony deal is substantially less (by as much as approx. 4 per cent) than what was being proposed by Invesco in the deal brought by them and the transfer of approx. 2.11 per cent shares by the promoters of Sony is a secondary transaction that will not be dilutive to any shareholder of Zee as opposed to ESOPs under the Invesco proposed deal, which would have been dilutive to all our shareholders, Zee said.