Zee-Invesco: Disclosure in instalments

It was a performance even a consummate actor would find difficult to match. Amidst an ugly battle with Invesco, a teary-eyed Subhash Chandra appealed to the people’s court on prime-time television a fortnight ago to support Zee against a foreign company, which, he said, was bent on snatching the “crown jewel” of lndia’s media empire. The 70-year-old media mogul was essentially trying to turn a personal battle with the US fund into an India Inc-versus-foreign predator debate.

There was more. Mr Chandra said when a foreign company offered him $500 million to buy Zee in 1994, he told the eager buyer, “India is not for sale. Today, when we are in a similar situation, I will tell them the same thing.” Then came the punchline: “If you (Invesco) want a fight, then I will fight back” for the sake of the “real owners” — Zee’s 250,000 shareholders and 90 million Indian viewers.

Invesco has already got a bitter taste of the fierce fightback. Zee’s latest revelation that the US fund, which held an 18 per cent stake, was trying to broker a takeover deal with Reliance Industries (RIL) earlier this year, has opened a Pandora’s box. Proxy advisory firm InGovern’s Shriram Subramanian has said Invesco’s war against Zee seems to be a takeover battle under the guise of shareholder activism.

Also, if Zee not disclosing the potential RIL deal much earlier highlighted corporate governance failure, it was equally baffling as to why Invesco did not disclose its role of a matchmaker at the time of requisitioning an extraordinary general meeting for the removal of Punit Goenka as managing director & chief executive officer. The market regulator should investigate the role of both Invesco and Zee for their prolonged silence on the issue.

By Invesco’s own admission, its role was that of a “facilitator” in the proposed deal between RIL and Zee. This basically meant Invesco was okay with the terms offered by RIL. No one knows why it is now fighting a very public battle on similar terms offered by Sony.

Consider this. The deal with Sony gifts a 2 per cent stake to the promoters of Zee for “non-compete,” even though the current MD & CEO of Zee will continue to run the merged entity for the next five years. This, Invesco says, is dilutive to all other shareholders, which it considers unfair. The second concern relates to the Zee-Sony announcement that the Zee promoter family will have the right to raise their stake from 4 per cent to 20 per cent, leading Invesco to conclude that it is “no more than camouflage on the part of Zee to divert and distract from the primary issues before the company.”

Fair enough. But according to the RIL-Zee proposal, upon completion of the merger, the acquirer will hold a majority stake in the merged entity and Mr Goenka will continue as the MD & CEO of the merged entity. In addition, he was offered employee stock options with no vesting conditions, representing approximately 4 per cent of the shareholding of the merged entity. This is in addition to the 4 per cent the promoter family already holds.
 

This basically makes it clear that the terms of the two proposed deals are not fundamentally different. Under both, Mr Goenka will stay at the helm and the promoter family’s stake will go up. If that’s the case, why did Invesco oppose the terms of the deal with Sony but was happy to “facilitate” the deal with RIL? Also, Invesco didn’t have any issue at least till February 2021 (when the RIL offer was being discussed) with Mr Goenka continuing as MD of Zee. So, what changed so drastically in just eight months? That remains a jigsaw puzzle.

Invesco must answer this fundamental question to counter the allegations that it was using corporate governance as merely an excuse to pursue some other interests. Zee said when Mr Goenka expressed governance concerns in relation to the deal, especially surrounding the valuation gaps, he was informed by Invesco that the deal would be closed with or without him.

While it is up to the regulators to figure out the veracity of this claim, the fact is that Mr Chandra and his team have delivered a big punch to protect his and his son’s kingdom. Invesco should act fast to match the firepower. That’s because voting rules currently allow a director to be voted out by a simple majority of shareholders. But new rules to come into effect less than three months from now will require 75 per cent shareholder approval for board appointments.

The critical issue is why Invesco is objecting to a deal that allows Mr Goenka to continue in the top job but ensures that Sony will control majority of the board. From a corporate governance standpoint, that’s not a bad outcome at all. Even the markets seem to believe that, going by the surge in the Zee stock. Just three years ago, Invesco had acquired an additional 11 per cent stake in Zee without seeking a board position and said that the “additional investment underscored our continued confidence in the management’s ability to deliver long-term growth and financial returns.”

So, in the interest of its own credibility, Invesco should not toe the disclosure-in-instalments line taken by the Zee promoters. It has a golden opportunity to go one-up by disclosing everything at one go and reveal an alternate feasible plan for Zee’s future.