Invesco Developing Markets Fund, Zee Entertainment’s largest shareholder with an ownership interest of nearly 18%, on October 11 released an open letter to Zee shareholders, outlining the urgent need for independent perspectives on the company’s Board of Directors.
The move assumes significance as Invesco and Zee are locked in litigation at multiple legal forums over the former’s demand for an EGM to rejig the board and oust the current MD & CEO Punit Goenka. Additionally, Invesco has raised concerns earlier about the proposed merger between Zee Entertainment and Sony.
“As long-term investors and stewards of investor capital, the Invesco Developing Markets team takes its fiduciary duty very seriously and is committed to acting in the best interest of clients and shareholders,” said Justin Leverenz, Chief Investment Officer, Developing Markets Equities.
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Leverenz added, “We have been a significant shareholder in Zee Entertainment Enterprises for over a decade. The depth of talent within Zee gives us conviction that if the company were properly managed, it has the potential for tremendous growth and success. “We are disappointed that the leadership of Zee has resorted to a reckless public relations campaign in response to the overwhelming demand from shareholders for leadership changes at Zee.”
“These actions and rhetoric are aimed at avoiding true accountability for the governance lapses and shareholder value destruction that the current leadership and Board have presided over. We are 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%.”
To be sure, over and above Invesco, other public shareholders in Zee include LIC, SBI Life Insurance, HDFC Life Insurance , Vangyard International Value Fund , Amansa Holdings Private Limited. The promoters hold around 4 percent stake.
Zee: Next one month crucial as brinkmanship with Invesco continues
According an official release by Invesco, it’s letter to shareholders makes the following claims:
Zee’s incumbent Board and management have demonstrably destroyed shareholder value.
• On the eve of Invesco’s EGM requisition on 11 September 2021, Indian stock market indices had more than doubled in the preceding five years, while Zee’s stock had more than halved in the same period[1]. The 40% stock increase[2] in response to the EGM requisition action indicates years of frustration among shareholders and an appetite for change.
• Weak governance and a permissive Board have enabled Zee’s growing entanglement with the financial distress of the founding family. This has brought extraordinary reputational damage and regulatory rebuke to Zee.
Recent action of Zee’s leadership and Board further confirm a deep apathy to shareholder rights.
• Since the EGM demand, Zee’s management and Board have gone to great lengths to deny a basic shareholder right enshrined in Indian law. A reckless and desperate public relations effort on the part of Zee’s founding family aims to deflect from the issues core to Zee.
• Zee needs a demarcation between the promoter family and the institution. Its Board needs to be strengthened with independent directors who take their jobs seriously, who robustly debate vital decisions and who serve as guardians of all shareholder interests.
Strategic alignments are welcome but must be fair to all shareholders.
• A better governed Zee would be substantially more valuable on its own. However, strategic alignments that help build a stronger media platform are also welcome.
• It is concerning that the current terms of the Sony-Zee announcement gift additional 2% equity to the founding family via a non-compete that seems entirely unjustified, while also providing a pathway for the founding family to raise its stake from 4% to 20% via methods that remain wholly opaque.
• Any transaction will be evaluated in a constructive spirit if and when full details are made available.
Good governance can steer Zee to a bright future.
• A Board that has been strengthened with independent voices can guide Zee into a healthy future, deliberate and decide on its leadership structure, and create a framework for the equitable evaluation of any potential strategic alignments.
