Invesco, which holds almost 18 per cent of the stake in ZEEL, raised questions on the Zee- Sony Pictures mergers with a view that the deal will not benefit all the shareholders and is only in the favour of the promoters who defaulted on bank loans.
Invesco wrote an open letter to ZEEL’s 250,000 shareholders, claiming that the non-binding agreement between ZEE and Sony “gifts” a 2% equity stake to Zee’s promoters under the pretence of a “non-compete,” even though the current MD & CEO of Zee will remain in charge to run merged entity for the next five years.
“This is dilutive to all other shareholders, which we consider unfair. At the very least, we would expect such largesse to be contingent on the MD/CEO leaving said position (thus raising the scenario of “non-compete”) or be structured in the form of time vesting and performance-linked ESOPs, which we as shareholders welcome as a transparent way to reward performance and leadership,” Invesco said.
Invesco, which was dragged to court by ZEEL in the context of calling an EGM “illegal”, said the Zee-Sony announcement mentions that the Zee promoter family can exercise their right to raise their stake from 4% to 20%, without mentioning the “how”. “‘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 be said instruments/warrants to the promoter family be priced to advantage them at the cost of ordinary shareholders?” Invesco asked.
Invesco alleged that there are no defined pointers on how the Zee-Sony merger will be carried out. It said, “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.”.
Since their EGM requisition in September, Invesco said it has seen the odd spectacle of Zee’s management, with the support of its Board, going to tremendous efforts to deny regular shareholders what Indian law considers a statutory right. “These actions, ostensibly in the “best interests of all shareholders,” as Zee’s communications claim, are indicative of a management team that prioritises self-interest over 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, urging for an EGM.
“As long-term investors and stewards of investor capital, the Invesco Developing Markets team takes its fiduciary duty very seriously and is committed to acting in the best interest of clients and shareholders,” said Justin Leverenz, Chief Investment Officer, Developing Markets Equities at Invesco
“We have been a significant shareholder in Zee Entertainment Enterprises for over a decade. The depth of talent within Zee gives us the conviction that if the company were properly managed, it has the potential for tremendous growth and success. “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,” Leverenz added. “These actions and rhetoric are aimed at avoiding true accountability for the governance lapses and shareholder value destruction that the current leadership and Board have presided over. We are calling on Zee shareholders to join us in asking why the founding family, which holds under 4% of the company’s shares, should benefit at the expense of the investors who hold the remaining 96%,” it said.
Invesco said as of August 31, 2021, the Invesco Developing Markets strategy has the investment amounting to $7.7 billion (Rs 56,200 crore approximately) in India – comprising 15.8% of its total assets under management worldwide.
“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% 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 17 June 2021,” it said.
“‘In this extraordinary regulatory rebuke, SEBI mentioned “large outstanding dues from related parties,” “letters of comfort issued by Directors of the Company without informing the Board,” and alongside other observations, concluded that “actions of the company are not in the best interest of shareholders,” Invesco said.
“We note that on the eve of our EGM requisition, Indian stock market indices had more than doubled in the preceding five years, whereas the stock of Zee had more than halved in the same period. This is a somber report,” it said.