Invesco Developing Markets Fund has reiterated its demand for an overhaul of media major Zee Entertainment’s board and said that it would pursue extraordinary general meeting (EGM) to hold the board and management accountable and bring about the necessary change in the company.
In an open letter to Zee’s shareholders, Invesco said it welcomed all potential strategic alignments, but was concerned over any transaction terms that would enrich Zee’s founding family at the expense of ordinary shareholders.
Last month the Zee board had announced that it had approved a non-binding term sheet with Sony Pictures Networks India to merge their operations. Under the terms of the deal, Sony will own 53 percent in the merged company and Punit Goenka will be MD & CEO.
Invesco said the lack of clarity around key aspects of the Zee-Sony announcement should concern all shareholders.
“We will gladly evaluate the transaction in a constructive spirit if and when additional information is made available,” Justin Leverenz, Chief Investment Officer, Developing Markets Equities at Invesco said in the letter.
The letter expressed disappointment at Zee management’s “reckless public relations campaign” in response to the overwhelming demand from shareholders for leadership changes at Zee.
Leverenz said the current leadership had presided over governance lapses and shareholder value destruction, and was now trying to evade accountability for its actions.
He pointed out the fact that in the last two years since Invesco had bought a stake in the company, benchmark indices had doubled while Zee’s share price had halved.
“Zee needs a demarcation between the promoter family and the institution,” the letter noted, adding, “Its 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.”
Leverenz said strategic alignments were welcome but must be fair to all shareholders.
On the Zee-Sony deal, he expressed concern about the clause in the merger deal gifting an additional 2 percent equity to the founding family in the disguise of a non-compete that seemed entirely unjustified.
“At the very least, we would expect such largess 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,” the letter said.
Leverenz also pointed out the clause allowing the Chandra family to increase its stake from 4 percent to 20 percent through methods that were opaque.
“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 said instruments/warrants to the promoter family be priced so as to advantage them at the cost of ordinary shareholders?,” Leverenz asked.
What Invesco plans to do:
Leverenz wrote the fund would exercise its right to push for an EGM. And if Invesco’s proposal was supported by other shareholders, six new independent directors will join the board of Zee and Punit Goenka will be removed.
“The new board could appoint an investment bank to evaluate all proposals for strategic alignments that might be probable, including the Sony proposal in its current or any revised format, as Sony might choose to present,” the letter said.
Invesco, Leverenz said, will firmly oppose any strategic deal structure that unfairly rewards select shareholders, such as the promoter family, at the expense of ordinary shareholders. In all potential alignments, Invesco expected appropriate disclosures regarding the future leadership and governance of the company.
“We are confident that a well-governed Zee will be fully ready to realize its potential, either with Sony, another strategic partner, or as a standalone company,” Leverenz wrote and concluded the letter saying:
“We want you to know that we share the disappointment and frustration of the last few years with all other long-standing shareholders of Zee. Our actions have been and will continue to be directed towards our common interests in the long-term value of Zee.”