Zee Vs Invesco + Reliance: Shareholder Activism Or Proxy War For Control?
In an year of ‘active’ institutional investors, the first round of Invesco versus Zee Entertainment Enterprises Ltd. seemed just that. Shareholder activism.
The foreign fund, that together with an affiliate OFI Global China Fund owns 17.88% in Zee Entertainment, sought an extraordinary general meeting to oust Punit Goenka, the company's managing director and chief executive officer, and two other directors. The latter two resigned a few days later, Goenka has held on to his position. Invesco also wants to appoint six new independent directors to the media company’s board. It cited poor financial and stock performance and governance concerns as reasons for this revamp of the Zee Entertainment board.
But the incumbent board has rejected Invesco’s EGM requisition as illegal and invalid, saying it is non compliant with company law, takeover regulations, competition law and more. That matter is now in court.
Interestingly, what started as a case of shareholder activism may now have contorted into a proxy battle for control.
Recent revelations show that earlier this year, Invesco approached Goenka with a proposal to merge Zee Entertainment with media entities of Reliance Industries Ltd.
Goenka says he found the proposal overvalued the Reliance entities and was short on details. Hence, he didn’t take it to the board.
Invesco says it was only facilitating negotiations between Reliance and Goenka.
Reliance says the deal fell apart as Invesco did not agree to Goenka’s proposal to increase promoter stake by subscribing to preferential warrants.
In all this, it is important to know that Goenka is the son of Subhash Chandra, the founder and current promoter of Zee Entertainment. Except the promoter stake has now dwindled to 3.99%.
These events have thrown up several legal and governance questions.
Is this a dispute on governance issues between a significant shareholder and the incumbent management and board or is this a proxy war over control?
Shouldn't Invesco have approached the Zee Entertainment board with the proposal from Reliance? The board has castigated the institutional shareholders for negotiating a deal on behalf of the company without authority.
Shouldn't Goenka have disclosed the Invesco-Reliance entities merger proposal to Zee Entertainment board?
Invesco's efforts to strike a deal between Reliance entities and Zee Entertainment failed. Does that make its subsequent actions against Goenka and the board seem that of a disgruntled investor?
The Zee Entertainment board’s reasons for rejecting Invesco’s EGM requisition are:
Prior approval from MIB on changes to CEO/directors. (The MIB guidelines state: It will be obligatory on the part of the company to take prior permission from the Ministry of Information & Broadcasting before effecting any change in the CEO/Board of Directors.)
Non-compliance with Takeover Regulations.
Non-compliance with Competition Act.
Non-compliance with Regulation 17 of the SEBI Listing Regulations.
Against Article 71 of the Articles of Association of the company.
No explanatory statement justifying candidate choice for independent director.
What about the Zee Entertainment board's responsibility towards finding the best deal?
What does all this mean for the company's public shareholders?
Watch this discussion: Umakanth Varottil, associate professor at faculty of law, National University of Singapore; and Murali Neelakantan, principal lawyer at Amicus, talk to Menaka Doshi.