The corporate battle between Zee Entertainment Enterprises (ZEEL) and its largest shareholder, Invesco, took a new turn Wednesday morning. Invesco revealed that it had facilitated talks for a merger between media companies owned by Reliance Industries and the Zee Group in February.
A few hours later, Reliance Industries, which owns Network18 Media and its subsidiary TV18 Broadcast, itself stepped into the long-drawn corporate war. In a statement, RIL said it was in dialogue for acquiring ZEEL but did not go ahead with the transaction after talks between Invesco and the Zee promoters broke down. It added that it respects all founders and has never resorted to any hostile transactions in the past and hence it did not proceed further.
In February-March, Invesco, which holds 18 per cent in ZEEL, had assisted Reliance in arranging discussions directly between its representatives and ZEEL managing director and chief executive officer Punit Goenka, according to the RIL statement.
“We had made a broad proposal for merger of our media properties with Zee at fair valuations of Zee and all our properties. The valuations of Zee and our properties were arrived at based on the same parameters. The proposal sought to harness the strengths of all the merging entities and would have helped create substantial value for all, including the shareholders of Zee,” it pointed out.
On Tuesday, Zee had said in a note to shareholders that Invesco had approached Goenka in February with a merger proposal on behalf of a rival company—part of a large Indian business group. The Zee note did not name Reliance, preferring to call it a large Indian business group.
If accepted, that proposal would have resulted in a loss of Rs 10,000 crore for the company’s shareholders, the note said. As per Invesco’s proposal, the strategic partner was to have a majority stake in the merged entity and Goenka was offered to remain MD & CEO of the merged entity.
“The shares of ZEEL were valued at Rs 220 per share, with total valuation of the public shareholding of the company at Rs 21,129 crore and the value of entities owned by the strategic group was considered at Rs 17,500 crore," Zee had said.
According to the plan presented by the ‘strategic group’, it was to infuse approx Rs 14,000 crore of cash into the merged entity, Zee had said. That would have led to the strategic group’s stake in the merged entity to increase to around 60 per cent.
In Wednesday’s statement, Reliance said it always endeavours to continue with the existing management of the investee companies and reward them for their performance. Accordingly, the proposal included continuation of Goenka as MD and issue of ESOPs (employee stock options) to management, including Goenka, the company said.
“However, differences arose between Goenka and Invesco with respect to a requirement of the founding family for increasing their stake by subscribing to preferential warrants. The investors seemed to be of the view that the founders could always increase their stake through market purchases,” the Reliance statement added.
TV18 Broadcast currently has a joint venture with American media major Viacom Inc for making movies and television content. According to sources, the deal-breaker was high valuation of Jio Cinemas, part of RIL's TV18 Broadcast. Zee and Viacom 18 compete in the entertainment genre.
Since January to date, TV18 share price has gone up by 50 per cent while its parent, Network18 Media’s share price is up 103 per cent in the same period. ZEEL shares were up 37 per cent to Rs 319 a share as on Wednesday. The total market valuation of ZEEL is Rs 30,472 crore while TV18 and Network18’s joint market value was Rs 14,732 crore.
“We wish to make clear that the potential transaction proposed by Reliance (the “strategic group” referenced but not disclosed in the 12 October communication by Zee) was negotiated by and between Reliance and Punit Goenka, Zee MD and CEO, and others associated with Zee’s promoter family. The role of Invesco, as Zee’s single largest shareholder, was to help facilitate that potential transaction and nothing more,” Invesco said.
The war of words between Invesco and ZEEL shows that minority shareholders were not in the loop about the acquisition talks till Tuesday.
“If Invesco has all along been playing matchmaker, they should have disclosed it at the time of the EGM requisition. The fact that Invesco was a motivated shareholder requisitioning an EGM would not now be lost on other shareholders. Also, if Invesco is proposing six new directors, can these directors be considered Independent?” asked Shriram Subramanian, founder and MD of proxy advisory firm, Ingovern Research Services.
JN Gupta, managing director of Stakeholders Empowerment Services, a proxy advisory firm, said Invesco had come under sharp focus as it was playing the role of an investment banker. "Invesco must give answers to the questions about its role," Gupta said.
ZEEL’s fight with Invesco and OFI Global China funds started after the funds asked the board on September 11 to remove three directors including Goenka – citing corporate governance lapses. The company also asked the company to call an EGM to appoint six of its directors. While two directors, Ashok Kurien and Manish Chokhani, quit a day before the annual general meeting of shareholders, Goenka stayed on. Within days, Zee board announced a merger with Sony and a due diligence is on currently.
Invesco later moved the National Company Law Tribunal against Zee. In turn, Zee sued Invesco in the Bombay High Court which adjourned the matter till October 21.