Large shareholders may nudge Zee Entertainment board on action plan

Share prices of Zee nosedived after collapse of its merger agreement with Sony Pictures Networks

Alarmed by its falling share prices, large shareholders of Zee Entertainment Enterprises are planning to seek the views of the company's board on the future plans of the Indian media conglomerate. The shareholders may also ask Zee to call an extraordinary general meeting of shareholders to elect new directors to steer the company if they are not satisfied with its future plans.

An institutional source said the action will be taken as early as next week and the move was triggered by the company's share price crash. The share prices of Zee nosedived sharply after the collapse of its merger agreement with Sony Pictures Networks India on January 22. 

Emails sent to large shareholders of Zee - LIC, HDFC Mutual Fund and ICICI Prudential Mutual Fund - did not elicit any response. Zee Entertainment did not reply to an email seeking a response.

The founder promoters of Zee currently own 4 per cent stake in the company. The rest of the shareholding is with institutional shareholders and retail investors. Zee board has founder Subhash Chandra as Chairman Emeritus and his son Punit Goenka as MD and CEO.

A source said the large shareholders want to understand the future course of the company.

Sanjeev Bhasin, director, IIFL Securities, said mutual funds and other large institutions should come together to oust Goenka and the management. "It is strange how the promoters with less than 4 per cent stake are holding the company to ransom and all the large shareholders are not doing anything about it. Even the market regulator Sebi should intervene to protect all the shareholders. Zee has seen a lot of value destruction because of the promoters. The intrinsic value of Zee is much higher than what the market is assigning. Real value can be unlocked if there is a new management," Bhasin said.

IIFL's clients have exposure to Zee shares.

Shriram Subramanian, founder and CEO of Ingovern, a shareholder proxy advisory firm, said the shareholders should come together and seek the management's explanation about the future plans. "We can expect some action on the front in the coming week," he said.

"The Board of Directors will be held accountable by the 96 per cent non-promoter shareholders who have a right to be angry that the merger could not be taken to completion. Institutional investors are likely to call for an EGM and remove the Board," he added.

The Zee-Sony merger collapse has also led to uncertainty over Disney India’s sale of cricket TV rights to Zee Entertainment Enterprises, which may not be able to pay up and may lead to litigation and uncertainty about the future.

Both Zee and Disney India have not commented on the issue. Sony had sent a termination notice to Zee on January 22, saying several conditions of the merger were not met. Zee, on the other hand, has said it had taken several steps to implement the merger including getting the National Company Law Tribunal  (NCLT) approval in August last year.

Investment banking sources and lawyers said with the promoters’ stake at 4 per cent, the former promoters may look at inducting a strategic partner.