In a historic decision, two of India’s most significant media network properties, Zee Entertainment Enterprises Ltd (ZEEL) and Sony Pictures Networks India (SPNI), entered into an exclusive and non-binding agreement. But, Invesco and OFI Global China Fund LLC, which together hold about a 17.9% stake in the ZEEL network, seems not happy with the merger between the networks and appointment of Punit Goenka as the Managing Director and CEO, despite the move being welcomed by the industry analysts, minority shareholders and stock market with a 35 percent increase in the share price of ZEEL. SPNI’s revenue for FY’20 stood at Rs 5,846 Crore and profit at Rs 976 Crore.
In a move that could derail the prospective future of the merged entity, Invesco, on September 11, wrote a letter demanding an extraordinary general meeting (EGM) to remove ZEEL’s Chief Executive and Managing Director Punit Goenka and induct six of their nominees on the Board. Within days after this, ZEEL announced the merger deal with its rival Sony Pictures, creating a $2 billion revenue company with a 25 percent market share.
In a letter dated September 23, the institutional investors reiterated ZEEL to stick to its fiduciary duties and not violate its statutory obligations to convoke the EGM as demanded by Invesco on September 11. The investors had called for the removal of non-executive directors, Ashok Kurien and Manish Chokhani, and appointing six independent directors—Surendra Singh Sirohi, Naina Krishna Murthy, Rohan Dhamija, Aruna Sharma, Srinivasa Rao Addepalli and Gaurav Mehta. Both Chokhani and Kurien resigned from the Board later.
While the media networks have made no official statement, InGovern Research, an independent proxy advisory firm, released a series of tweets on the issue questioning the motive of Invesco. One of the Tweets by InGovern stated, “Sony comes in as a white knight for ZEE. Nothing wrong with two companies proposing a merger as CEOs can initiate merger discussions and then approach shareholders for a vote. Invesco did not have an alternate plan, and hence, it would be surprising if it is not supportive of this merger”.
As a fund, Invesco would be interested in financial returns and clean governance. With Sony as a majority shareholder and a likely reconstituted Board, the merged entity would be the best solution Invesco could have hoped for it. Punit Goenka’s capabilities as a MD of a leading media company was not questioned. Invesco was unhappy about the governance of Zee due to the group company issues. So, as the proposed MD of the merger entity, Punit Goenka should not be a concern, said the firm in another Tweet. “Invesco is having some problems. If they have any problem, they should take us into confidence. Also, they should come to the AGM and explain what is wrong with the Company. I hope Invesco is listening. They should not just show the power by the shareholding. They should also come back to the shareholders and explain why we should vote for them. We will be open-minded, and we will decide on merits,” the shareholder added.
However, it is surprising that Invesco has not yet articulated any clear alternate plan for the shareholders. The new proposed directors have to be evaluated on their capabilities.
According to the industry observers, the Sony-Zee merged entity will emerge as one of the country’s largest Media and Entertainment companies, potentially complement each other in various verticals. ZEE stock had rocketed by 35 percent post the announcement of the deal. Some investors also see the removal of Punit Goenka as a rising risk on continuity of leadership and in terms of strategic directions and low-cost model of ZEEL. In spite of the myriad of positive aspects the mega merger brings into the table, Invesco is trying to sabotage the merger deal through the corporate bullying tactics for unknown reasons.
