Sanjiv Gupta mismanaged AskMe, missed performance targets: Astro

Priyanka Sahay & Harsimran Julkamoneycontrol.comMalaysia’s Astro Entertainment Networks Ltd is not happy with the way top management of Getit Infoservices Pvt Ltd that runs e-commerce brand AskMe has operated the business India, so far. The Kuala Lumpur based firm that runs a large gamut of television stations is in loggerheads with AskMe’s co-founders and it’s top management. In an email response to moneycontrol.com's questionnaire, Astro said it had cautioned AskMe’s founders in 2015 that it was unable to put in more money. It had invested US$300 million till then. Astro highlights that the business model of AskMe management were uncompetitive when bench-marked against competitors (Flipkart, Amazon, Snapdeal and others). and that AskMe was more focussed on marketing and brand building than meeting key performance indicators.When did Astro as an investor start sensing that there were troubles with the AskMe Group?Astro Entertainment Networks Limited (AENL) has been invested in AskMe since 2010. We have made every effort possible to keep the business afloat during volatile market conditions. However, despite every effort made, AskMe has been unable to meet any of their business KPIs (key performance indicators) quarter on quarter. The management has continued to overspend their budgets, despite being cautioned against it. AENL, having noted how the business was progressing, had informed the management of Getit (led by Sanjiv Gupta) in 2015 that they were not prepared to fund the business and that management should make every effort to find alternate means to source funding, including identifying potential investors for the business. Also, the board had hired an independent advisor the ‘health state’ of Getit. This advisor advised the board in June 2016 that the business plans of the company were not only found to be overly aggressive, uncompetitive when benchmarked against its competitors, but also left no pragmatic means of cutting their mounting costs. The advisor also concluded that given the current circumstances, the business had dim prospects moving forward given the current circumstances. The board, having considered the opinions provided by the independent adviser, instructed management to scale down the business and suspend trading but this was not complied with by AskMe top management.What led to the resignation of AskMe co-founder and CMD Sanjiv Gupta from the board?Sanjiv Gupta was the managing director of Getit in the period from 2012 to 2016, and he was contractually responsible for managing the day-to-day operations of the company. He has taken no responsibility of mismanaging the business, spending US$300 million with poor results, continuing to build liabilities with vendors when he clearly knew the business was to be scaled down and re-engineered. Most importantly he resigned without any accountability to the employees, board or shareholders to oversee the company during this period.AskMe management alleges that the payments of employees and vendors are due because of the non-payment of funds by Astro. How would you see this allegation?All AENL shares in Getit are fully paid up, and as per the law. AENL as a shareholder owes Getit no further funds. Paying employee dues was a role that management of Getit should have proactively planned for and managed as part of their duty of care for their employees.Based on the key performance indicators that AskMe top management had committed to the board, it failed to meet the agreed deliverables, quarter-on-quarter since inception. Despite, not meeting agreed performance, AENL continued to financially support management in the hope that management were able to turn the business round and start meeting agreed KPIs. However, a red-line was drawn in 2015 by AENL and AskMe management were asked to commence sourcing for alternate funding through a third party investor to support the business growth moving forward. Sanjiv Gupta, as managing director, was tasked to identify and conclude the deal after the Getit Board provides the necessary approvals.What specific operations did Astro ask the group to scale down? How many employees would have been asked to leave then? Why did Getit not go ahead with the suggestion?The board had consistently requested management to review and rationalize its business activities and to “cut their cloth accordingly to the material they had”. The board took a more aggressive stand on this matter after the advisers’ report (June 2016) that the business model was not sustainable. Getit management was advised to scale down operations and suspend trading immediately, but they chose not to comply with the advice.What sort of ideological differences occurred between Astro and AskMe Group's management, especially Sanjiv Gupta?AENL prescribed a business model where governance, controls, processes and strong backend systems must take precedence to cater to the growing needs of the business to ensure that the company was able to meet its agreed KPIs. However, management seemed to be very focused on marketing and brand building activities. (AskMe had hired Bollywood stars as brand ambassadors) An internal mail from the group also accuses Astro of breaching its promise by not sending $5 million by August 2016. Was any such promise ever made? As a responsible investor who has invested close to $300 million in the company to-date, Astro Entertainment Networks Ltd (AENL) has at all times been fair, scrupulous and professional in its dealings with the management of Getit and will continue to abide by all Indian laws and regulations with respect to its investment in Getit Infoservices Pvt. Limited. Astro has maintained that despite investing $300 million into the group, AskMe was not able to recover the business. What sort of expectation Astro had in terms of revenue by the group/AskMeBazaar for the financial year 2015-16?Astro has been committed to AskMe and the India market for a number of years across various businesses. There have been challenging times. But Astro’s commitment continued. The lack of ownership has been the primary let down as the management of AskMe has taken no responsibility of mismanaging the business and passed on their accountability. The KPIs were never met. What has been resisting Astro from going ahead with a management buyout (MBO)? Do you think, it has a vested interest of the management?AENL has actively supported an MBO, provided it is backed by a credible investor. In order to actively support the search for a credible investor, the board appointed a leading investment bank, and as per the feedback received from them, all potential investors approached found Getit’s business model to be unsustainable in the prevalent market conditions. There was found to be excessive cash burn and a heavy employee count, which was exacerbating an already difficult situation. As a result, despite efforts from the investment banker, a credible financial backer that can ensure that the company operates effectively and efficiently, has not been identified. It is disappointing to observe that Sanjiv Gupta has been unable to revert with a single genuine offer that comes with a credible financial backer, that will allow Getit to continue to operate as a going concern.In addition, the MBO offer required AENL to pump in an additional $30-50 million to keep the business going. Such an MBO offer had no materiality and there was clearly no assurance that the business model would be sustainable, neither was there a credible investor/financial backer identified to ensure the business continues as a going concern.At this point in time, what is a possible way out? What sort of response is Astro expecting from AskMe's management to sort out the issue?It is highly possible that the company will now go into court managed liquidation and once the court appoints a liquidator, the situation will be assessed and managed.priyanka.sahay@network18online.comAlso read: How the AskMeBazaar scam unfolded'Am no longer an employee, have quit': AskMeBazaar CEOWith no management, employees can’t even resign or get fired!In dire straits: Employees threaten suicide in emails to CMDAskMe scaled too fast and ran out of money'I might have to sell my house to pay debt': AskMe seller