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Exclusive | Zee Entertainment: Essel Group may rely on white knight, shareholder votes to combat Invesco

Invesco’s demand for an EGM for the removal of Punit Goenka as a Director at Zee Entertainment and re-constitution of the board is likely to open a war between the activist investor and promoter Essel Group. Here’s a look at Essel Group’s possible strategy in this Game Of Thrones.

September 15, 2021 / 02:34 PM IST

A corporate battle cannot be ruled out at Zee Entertainment, which is trying to fend off a move by its single-largest investor, Invesco Oppenheimer, to oust MD & CEO Punit Goenka from the board of a company promoted by his family entity, Essel Group.

Sources tell Moneycontrol that there is a two-pronged strategy at play in Essel Group, involving a white knight and vote gathering. The group is said to be scouting for support from all corners, and investors new and old. The current state of disarray also makes the company vulnerable to a hostile takeover attempt.

White knight in the wings?

Sources tell Moneycontrol that Punit Goenka is in talks with several investors to back him as a white knight in the battle with Invesco. In such a case, the new investor can call for a voluntary open offer for existing shareholders.

Given the frenzy in the Zee stock on hopes of a deal, many opportunistic purchases have been made to take advantage of a potential open offer by an investor to counter Invesco or even ride a hostile takeover attempt. Market experts point out that positions have been built by market participants keeping these possibilities in mind.

Close

Punit Goenka had set a precedent by convincing Invesco Oppenheimer to invest in Zee at the peak of its debt woes in 2019, when he could have lost control of the company completely. Oppenheimer, an existing investor, gave a lifeline to help Zee repay part of its ballooning debt and avert the ongoing crisis with lenders. However, Invesco Oppenheimer’s investment has been reduced to half in the last two years due to the stock’s underperformance.

Garnering shareholder votes

Voting at the EGM is the most crucial part of this protracted battle, and vote gathering by both the sides will be the crucial strategy that will decide the outcome of the battle. Before the record date for the EGM, frantic activity is expected to gather shareholder votes.

Ace investor Rakesh Jhunjhunwala’s RARE Enterprises and BoFA Securities both picked up close to half a percent each during the surge in the Zee stock after Invesco’s EGM requisition. Any share purchase before the record date of the EGM will get a voting right at the EGM, as per the rules. Jhunjhunwala declined to comment on a query from Moneycontrol about the share purchase. BoFA Securities already owned a 1 percent stake in Zee before this bulk deal.

At the Extraordinary General Meeting, the resolution will need over 50 percent of the votes of those present and voting as part of ordinary resolution rules. None of the parties here has a majority and Zee’s shares are widely held, which makes this battle even more open.

Essel Group holds only a 3.99 percent stake while warring investors Invesco Developing Markets Fund and OFI Global China Fund LLC have a 17.88 percent stake. A lot will depend on which way the remaining investors swing.

Among the dominant institutional shareholders will be LIC, with a 4.9 percent stake, and Amansa Holdings, with 3.4 percent. HDFC’s fund, insurance companies SBI Life and HDFC Life, and others such as Government Pension, City of New York Group Trust and SEI Trust, hold a 1.5-2 percent stake in Zee.

Domestic Mutual Funds such as Nippon India, Mirae, Kotak, ICICI Pru and Aditya Birla Sun Life own over 1 percent in Zee and will play a crucial role in deciding the fate of the company and the promoter.

Powers of a shareholder

Invesco has exercised its power as a shareholder to demand an EGM on the board changes it wants. As per the rules, any shareholder or group of shareholders holding at least 10 percent of the shares of the company can request the Board of the company to convene an EGM.

The Board has to call the EGM in 21 days and had to hold the EGM within next 21 days. A record date can’t be earlier than 7 days before the EGM.

The board is duty-bound to call an EGM within 21 days of receipt of notice, failing which the requisitionists themselves can call an EGM within three months. This is the timeline Punit Goenka has to prepare his defence mechanism.

Experts suggest that this time the decision is likely to be much more democratic, given the widely held nature of the company. Institutional investors will look at the situation based on corporate governance standards, the ability of the investor to strengthen the team for growth, lack of management continuity after Punit Goenka’s exit, and Zee’s prospects to ride the digital boom.

At the peak of its debt woes in 2019, Essel Group had managed to pull the company back from the brink. It remains to be seen if the promoter group has the firepower to perform the same feat again in less than two years.

Zee Entertainment is yet to respond to an email from Moneycontrol about ongoing developments at the company.
Nisha Poddar is an Editor-M&A, CNBC-TV18
Tags: #Zee
first published: Sep 15, 2021 02:21 pm
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