Invesco To Stay 'Firm And Steadfast' In Fight Against Zee Board: Open Letter
In an open letter to Zee Entertainment Enterprises Ltd.'s shareholders, the company's largest investor has raised questions regarding its management, governance and "value destruction".
"Zee’s 40% stock price increase after our intentions became public demonstrates the frustration of Zee’s long-suffering investors and the appetite for change," Invesco said in the letter
Releasing the letter to the media, Justin Leverenz, Invesco's chief investment officer, developing markets equities, said the fund has been a significant shareholder in the company for over a decade and is convinced, based on the depth of talent in the company, that were it properly managed it has the potential for tremendous growth.
"We're calling on Zee shareholders to join us in asking 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%.”Justin Leverenz, Invesco's Chief Investment Officer, Developing Markets Equities
Invesco Developing Markets Fund and affiliate OFI Global, together holding a 17.88% stake in the media major, are locked in a dispute with the company's current board and Managing Director and Chief Executive Officer Punit Goenka. Goenka is the son of Zee Group founder Subhash Chandra. The two foreign funds want Goenka ousted and have proposed appointment of six new independent directors and have sought a shareholder meeting to vote on these proposals. Zee's board rejected their requisition for an extraordinary general meeting on grounds that it's invalid and illegal. The matter is currently in court.
Zee's promoter family currently owns 3.99%. The remaining 96% is owned by public shareholders.
Key Points In Invesco's Letter
Repeated governance failures and underperformance make the case for change at Zee clear, the letter says.
It refers to a letter by the market regulator to the company, dated June 17, raising concerns around related party transactions between the company and the promoter family.
Several "friendly and well meaning" discussions with the company's management yielded nothing except platitudes such as “Zee 4.0.”
The Zee board has gone to great lengths to deny an EGM though Indian law deems it to be a statutory right to ordinary shareholders.
That's why the board needs to be strengthened with independent directors who "take their job seriously".
"We note that on the eve of our EGM requisition, Indian stock market indices had more than doubled in the preceding five years, whereas the stock of Zee had more than halved in the same period. This is a somber report card.Invesco's Open Letter To Zee Entertainment Shareholders
Strategic alignments are welcome but must be fair to all shareholders, is the second point the letter makes.
It refers to the deal with Sony India that "gifts a 2% equity stake to the promoters of Zee in the guise of a "non-compete", even though the current MD and CEO of Zee will continue to run the proposed merged entity for the next five years".
This is dilutive to all other shareholders, the letter notes, and would be justified only if it were contingent on Goenka resigning from the MD and CEO positions.
The letter also objects to the deal provision allowing the Zee promoter family to raise its stake from the current 4% to 20% without specifying details on how or the timeline.
The letter makes it clear that Invesco will not support a deal with Sony India on such terms. "We will firmly oppose any strategic deal structure that unfairly rewards select shareholders, such as the promoter family, at the expense of ordinary shareholders," says the letter.
The foreign fund emphasised its intent to pursue a shareholder meeting and seek reconstitution of the board.
...events of the last few days have further reinforced our suspicion that the current management and Board of Zee appear unwilling to hear the voice of ordinary shareholders. This is why we intend to stay firm and steadfast on the course we have chosen.Invesco's Open Letter To Zee Entertainment Shareholders