How the Zee-Invesco boardroom battle ended with a whimper

For a boardroom drama that attracted so much attention, consumed media real estate and generated a heated debate for several months, the Zee-Invesco affair seems to have ended rather meekly and without any big bang. 

Last week, the two sparring parties—the Subhash Chandra-promoted Zee Entertainment Enterprises Ltd and its biggest shareholder, the US-based Invesco Developing Markets Fund—called a truce after the latter withdrew its notice for an extraordinary general body meeting (EGM) to remove Zee managing director and chief executive officer Punit Goenka and reconstitute the board with six independent members.

Invesco, which along with the OFI China Fund, holds a stake of just under 18% in Zee, is the largest minority shareholder in the broadcast and entertainment company.  

The two minority investors had thrown a spanner in the wings in the merger process between Zee and Sony Pictures Network (SPN) India Ltd, which was effectively a bailout for the former’s parent, the debt-laden diversified Essel Group that has been hiving its assets off in a bid to avoid collapse. 

Last week, after months of mudslinging, Invesco effectively buried the hatchet and ended the feud, at least for now. 

Interestingly, this development came just a day after Invesco won its appeal against Zee in the Bombay High Court. The court had allowed its appeal against a single judge’s order that had granted Zee an injunction, effectively restricting Invesco to act on its requisition to call an EGM.

“We continue to believe this deal in its current form has great potential for Zee shareholders,” Invesco said in a statement. “Following the merger’s consummation, the board of the newly combined company will be substantially reconstituted, which will achieve our objective of strengthening board oversight of the company.”

While there is no official word yet on the board of directors of the merged entity, a report in The Economic Times had said that the five Sony nominees on the combined board include Tony Vinciquerra, chairman and CEO of Sony Pictures Entertainment (SPE); Ravi Ahuja, chairman, Global Television Studios and SPE corporate development; and Erik Moreno, executive vice-president, corporate development and M&A, SPE.  The Sony Group will also have the right to nominate majority directors on the board of the merged entity.

“We also recognise that following the merger’s consummation, the Board of the newly combined company will be substantially reconstituted, which will achieve our objective of strengthening Board oversight of the company. Given these developments, and our desire to facilitate the transaction, we have decided not to pursue the EGM as per our requisition dated September 11, 2021,” Invesco said.

However, Invesco did also say that since the Sony-Zee merger is not complete yet, it does retain the right to call for a fresh EGM. It said it will “continue to monitor the proposed merger’s progress. If the merger is not completed as currently proposed, Invesco retains the right to requisition a fresh EGM”.

The merger

As per the merger deal finalised in December, SPN will own a 50.86% stake in the merged entity while Zee’s promoter entity Essel Holdings will own 3.99%. The remaining 45.15% will be owned by public shareholders. This will effectively translate into SPN India shareholders holding a 52.93% stake in the combined entity and Zee shareholders owning 47.07%.

The Japanese investor will be the majority shareholder of the merged entity as SPN India, Sony’s India entertainment arm, is investing an additional $1.5 billion, or Rs 11,615 crore, to capitalise it. 

This money will allow the new entity to grow its business further. Had Sony not infused more cash, Zee shareholders would have held a majority stake with 61.25% shares. 

But the constitution of the board and the appointment of the managing director were apparently not the only sore points that brought Invesco and Zee at loggerheads. 

News reports also pointed to a clause in the term sheet of the proposed deal, which apparently allowed Zee’s promoter family to increase its shareholding from the current 4% to as much as 20%. Minority shareholders like Invesco were concerned that such a clause would effectively dilute their shareholding in the merged entity. 

In fact, Invesco had raised this issue in an open letter on 11 October. Invesco had asked “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%”. 

This was also when Invesco had demanded an EGM to rejig the board and for Goenka’s ouster and took the matter to court when Zee did not call the meeting.

The issue reached the doors of the National Company Law Tribunal (NCLT), the National Company Law Appellate Tribunal (NCLAT) and the Bombay High Court. 

The Reliance angle

But the root cause of Invesco’s disagreement perhaps lay someplace else. Invesco apparently wanted a deal with the Mukesh Ambani-controlled Reliance Industries Ltd and not Sony. 

In October last year, Goenka informed the company’s board that minority investor Invesco was trying to oust him because he chose Sony over a large Indian conglomerate for the merger deal. 

While Goenka did not specifically name Reliance, a day later Invesco claimed that the Indian company was Reliance, which owns TV18 Ltd. “We wish to make clear that the potential transaction proposed by Reliance (the ‘strategic group’ referenced but not disclosed in the October 12 communication by Zee) was negotiated by and between Reliance and Goenka 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 in a statement, as reported by The Economic Times.

Zee, for its part, said that the deal with Sony was the best deal for its shareholders. 

“This is the best deal for shareholders at this point in time as we are interested in maximization of values for all our stakeholders including shareholders, the company and consuming public," Zee chairman R. Gopalan said in a Bloomberg Television interview in October last year, adding the company was open to considering if there was another deal on the table.

Chandra’s retort

Things came to a head when Zee promoter Chandra himself stepped into the fight. He questioned the minority shareholders on the stand taken by them. "No matter who runs Zee but the company, to which I've and many of my friends have given their blood and sweat for the past 30 years, should be in the hands of someone under whose leadership the organisation should prosper and shareholders should be benefitted since I don't have any profit or loss associated with this,” Chandra said.  

"Invesco is a good investor but in this case of Zee they are not revealing that what they will do after taking Zee, and in whose hands management will go?"

"You want to remove Punit Goenka? Okay, fine but what next? Have you done any deal with someone? The 6 directors given by them - what's their background? Do they have any relation with any particular company that wants to take over? Hence, Invesco should come out transparently and openly, and let the shareholders decide - whether they want to take the deal of Invesco or want to go with Sony's deal,” Chandra said.  

Invesco, for its part, said that it rejected all assertions made by Zee. “We specifically note that the implication that we as a shareholder would seek out a transaction for Zee that is dilutive to the long-term interests of ordinary shareholders, including ourselves, simply defies logic,” the offshore investor said, according to the report.

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What the merger means

The imbroglio, which has now more or less ended, had threatened to scuttle a merger that was not just important for Zee and Sony, but had the potential to change the landscape of the media and entertainment industry in India. 

Analysts see the deal as a big positive move for the industry and have been of the view that it will bring tremendous synergies between the two companies that will exponentially grow the business and the sector.

When completed, the merger will create the biggest entertainment network in India with a 26% viewership share. In addition, Zee-Sony combined will command a share of 51 percent as of Q1FY22 data in the Hindi general entertainment channel segment, which is the top genre on TV in terms of viewership. In Hindi movies, which is another top-performing genre, the Zee-Sony entity will have a viewership share of 63%.  

This is a win-win deal for both parties. While Zee gets to survive, all its assets, including the entertainment TV channels it owns, its OTT platform Zee5, its catalogue of TV and online programs and movies and its film studio Zee Studios, will be controlled by the merged entity, which, in turn, will be majority owned by Sony. 

These will be in addition to Sony’s TV channels (now, 75 in all), the OTT platform Sony LIV, Sony Pictures Films India and Studio NXT, which makes digital content. 

The merged entity will effectively own the biggest suite of entertainment content services in India, bypassing Disney India and Star India. The news business is, however, not part of the merger deal and remains under Zee Media, which is controlled by Chandra’s Essel Group.

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