Invesco wants to wrest control of Zee, says Punit Goenka in NCLT affidavit

Accuses Invesco of wanting to merge Zee with a rival at the cost of Zee shareholders

Punit Goenka, MD and CEO, today filed an affidavit in the National Company Law Tribunal (NCLT) alleging that Invesco wants to “teach him” a lesson for rebuffing their proposal for merging Zee with the media entities controlled by a rival Indian conglomerate. The merger proposal by Invesco with the “strategic group’’, would have led to a massive loss to Zee shareholders in the absence of any valuation reports, Goenka informed the court.

Without naming the Indian conglomerate, Goenka said during his calls with a representative of the "strategic group", he was told that if he sought valuation information, they were not interested in doing the deal. “I was extolled to get the deal done as my respect would be enhanced and I would be given a free hand to run the proposed merged entity and how I also would make a market leader with them. I was categorically informed that the Invesco proposed deal should be closed within five days. I was further told that the discussions with the applicants (Invesco) were already concluded and therefore there could be no discussions on the valuation," Goenka revealed. "In short, I was told that since no money was coming out of my pocket; and my position was being secured, I should not be asking any questions and should focus on getting the deal done,” Goenka revealed in his affidavit which is filed with the NCLT."

On October 13, Invesco had said it had facilitated a transaction with Reliance Industries entities which was negotiated by and between Reliance and Goenka and others associated with Zee’s promoter family.

When contacted, a Zee spokesperson declined to comment on the affidavit, saying the matter is subjudice,

As per the court filings, Goenka gave details about the Invesco proposed deal and said a call was scheduled on March 3, 2021 between him, Aroon Balani and Bhavtosh Vajpayee (of Invesco) to discuss the responses received from the strategic group on the proposed deal. “During the call,  Balani and Vajpayee acknowledged the vague nature of the responses provided by the strategic group and the lack of information/documents provided to me. However, to my surprise, I was informed that the valuations proposed by the strategic group had been unilaterally agreed by the applicants (Invesco) without consulting the board of the Zee which includes myself, and there was no room for further negotiations on the commercial terms of the deal and there was no further data that would be forthcoming to diligence and verify the valuation claims of the Strategic Group for purposes of the potential deal,” Goenka said.

Goenka said the deal structure envisaged the infusion of fresh capital by way of warrants by the strategic group. “In lieu of stock options, I even asked if I could infuse additional funds in Zee on the same terms, the representatives vehemently dismissed this suggestion,” Goenka said.

On raising governance concerns on the approach of the Invesco proposed deal and his difficulty in taking the deal to the Zee board, Goenka said he was told in clear terms that if he was unwilling to move forward with the Invesco proposed deal, then Invesco would take steps to ensure the deal would have to be consummated without his involvement in the proposed merged entity.

"Vajpayee categorically communicated that the strategic group will not provide me with access to any documents including any basic business models to complete a basic due diligence in relation to the valuation attributed to the entities belonging to the strategic group, which will be merged with the Zee, despite I having requested for such documents repeatedly,” Goenka said.

Goenka said there was a gap of at least Rs 10,000 crore in the valuation attributed to the entities belonging to the strategic group proposed to be merged with Zee-- being inflated numbers being proposed by the strategic group without any adequate underlying documents to back their claims and the valuation gap with not even a single piece of paper demonstrating their claims.

Goenka said he was offered ESOPs (employee stock options) equivalent to about 4 per cent of the proposed merged entity, which, when exercised, would raise the eventual shareholding of the promoter group of the Zee to 7-8 per cent in the proposed merged entity. "However, in lieu of the aforesaid ESOPs, which would be available to me at no cost, I offered to infuse cash in the proposed merged entity. The warrants would be issued at the same value as the valuation at which the strategic group was getting the warrants. However, Vajpayee insisted as per the terms of Invesco's proposed deal, that was not an option for me at all and he summarily dismissed my suggestion and asked me why I was seeking to pay for something that was being offered to me for free,” Goenka revealed.

Goenka said Invesco’s EGM requisition notice attempts to clear the decks of any questions and impose nominee directors in the garb of ‘independent directors’ and get the deal done with the strategic group. “Needless to say, after this conversation where it became clear that the valuation basis would just be in the form of a ‘report’ from a ‘nominated’ valuer, I didn't take the deal further, and neither did the applicants–although they could’ve easily brought the deal up to the board directly. Instead, nearly six months later, they sought the removal of all non-independent directors from the board and to ‘nominate’ six more independent directors to de-facto assume control of Zee,”  Goenka said.

Goenka said the ulterior motive behind issuing the EGM requisition notice by Invesco is an illegal attempt to take full control over the management, affairs/operations of Zee and to wrest control over the board of directors, which violates several statutory provisions, and is solely intended to ensure that the Invesco are able to get the Invesco proposed deal approved by the reconstituted board of directors of Zee. “This, in turn, will help the applicants achieve their self-serving objectives and the interest of the strategic group at the cost of the shareholders of Zee,” Goenka said.

Goenka said Invesco and its associate fund, OFI Global China, backed by American fund manager, Oppenheimer, is seeking to disturb the existing management of a large, listed company against whom there is no allegation on record -- is against the interest of the company and also against public interest. “The NCLT as the custodian of such interest should never assist such a move more so where the applicants (Invesco) have an alternative remedy under the statute of calling the meeting themselves,”  Goenka said.

Goenka said the company is doing extremely well as reflected positively in its EBITDA, rising consistently since FY 2017 with some of the best margins in the media and entertainment industry and is paying dividend consistently to its shareholders. Despite the global acquisition of Star by Disney combining to form a multi-billion-dollar entity with a tremendous impact in India. Zee was able to continue to hold impressive market share in India at 18 per cent in the January to September this year period, Goenka said.

On Zee's corporate governance record, Goenka said Invesco funds made substantial investments into Zee by acquiring the promoter group shares in a ‘block deal’ on the exchange. The promoter group used these funds to eliminate a substantial portion of its market indebtedness to the public banks, mutual funds and NBFCs.

Goenka said even before Invesco discussed governance and financial issues with him, the Zee board, in keeping with its own fiduciary duties, took up all the issues in detail and even had an independent auditor examine the issues and a report was presented to the board of Zee in July 2020. A summary of the report was also made available to the public at large on Zee’s website. Further, all internal policies of Zee were revamped and strengthened based on expert advice and published on Zee’s website in July 2020.

After Sebi asked for details, Zee informed the market regulator that various measures that were already put in place with a view to ensure that the interests of shareholders are protected, and highest standards of governance and transparency maintained. “Since the issuance of this letter by the Zee there have been no further exchange of communication with Sebi on this subject. This letter is now in this petition (by Invesco) is being termed as an 'extraordinary rebuke' in the open letter written by the Invesco to Zee shareholders with the only view to sensationalise the past,” Goenka said.

Meanwhile, NCLT Mumbai adjourned the hearing to Wednesday so as to wait for the high court order on Tuesday. Invesco Developing Markets Funds and its subsidiary OFI Global China Fund had moved NCLT after the Zee board rejected their EGM requisition notices citing the notice as illegal and invalid.