Zee-Invesco saga hots up as Reliance name is dragged in

The dispute between Zee Entertainment and its largest shareholder, Invesco, which holds an 18% stake, took a turn for the worse on October 13 after Invesco revealed that it had facilitated merger talks between Zee and Reliance Industries in February and March this year. Reliance owns the listed Network18 Media and Investments, which has interests across television, digital content, print and film production. The revelation comes just as Zee has signed a non-binding deal to merge with Sony India.

Reliance Industries has confirmed that Invesco arranged discussions with Zee MD & CEO and founding family member Punit Goenka which led to Reliance proposing a merger between its media assets and Zee at what it called fair valuations. The proposal also included continuation of Punit Goenka as managing director and issue of employee stock options to the Zee management, including Goenka. However, according to Reliance, the deal fell apart as Invesco did not agree to Goenka’s requirement for increasing his family’s stake by subscribing to preferential warrants. The promoter shareholding in Zee has come down to 3.99%. Reliance in its statement said it did not go ahead with the deal out of respect for all founders, stressing that it had never resorted to hostile transactions.

Zee, meanwhile, has accused Invesco of resorting to double standards by opposing its merger with Sony India, which contains terms similar to those discussed with Reliance. It has claimed that the deal pushed by Invesco with Reliance undervalued the company and if it had gone ahead, Zee shareholders would have suffered a loss of at least Rs 10,000 crore. 

Zee has also highlighted that Invesco voted in favour of the reappointment of Punit Goenka as the MD and CEO as recently as September 2020. Zee has said that Invesco’s actions over the past few weeks have been motivated by factors not related to the company’s business or concerns around corporate governance.

While Invesco, the American fund, welcomed the proposed deal with Sony, it said the transaction terms were not in the best interest of all shareholders and would benefit only the promoters.

Zee maintained that the deal will not be dilutive to any shareholders of the company.

But where did this bitter public tussle begin? For that, we need to take a look at Invesco’s demands.  

Invesco has sought changes at Zee’s top management and board of directors citing alleged corporate governance issues and financial irregularities flagged even by Sebi.

On September 11, it asked Zee to convene an Extraordinary General Meeting (EGM) of shareholders to remove MD and CEO Punit Goenka and appoint six new independent directors named by it.  

On October 1, Zee’s board of directors rejected Invesco’s call for an EGM, citing lack of approvals from market regulator Sebi and the Ministry of Information and Broadcasting.

Zee founder and Punit Goenka’s father, Subhash Chandra,  accused Invesco of trying to take over the firm in a “clandestine” manner.

That marked the start of a legal battle.

Invesco approached the National Company Law Tribunal, seeking to force Zee to call the meeting. The NCLT asked Zee to file a reply to Invesco’s petition by October 22. At the same time, Zee moved the Bombay High Court asking it to declare Invesco’s request for the EGM illegal and invalid. 

This has created a parallel line of litigation for the same issue as the NCLT is also hearing the matter.

A lengthy legal battle is likely to unfold regardless of how the Bombay High Court treats Zee’s suit for dismissal of Invesco’s demand.

Amid a war of words between Zee and Invesco, minority investors seem to have become the collateral damage, as they were been kept in the loop about acquisition talks with Reliance until now. 

With the Zee board refusing to convene an EGM, legal experts have opined that Invesco could ask the NCLT to invoke certain provisions of the Companies Act and order the EGM.

Even if Invesco succeeds in forcing Zee to convene an EGM, it remains to be seen if it can attract enough support from other shareholders to execute the changes it wants.