Invesco may favour Zee-Sony deal if promoter stake does not exceed 4% at merger: Sources

Zee Entertainment Enterprises | The company reported higher profit at Rs 270.2 crore in Q2FY22 against Rs 94 crore in Q2FY21, revenue increased to Rs 1,978.8 crore from Rs 1,722.7 crore YoY.

Invesco Developing Markets Funds, a key shareholder in Zee Entertainment Enterprises, may support the company’s planned merger with Sony Pictures Networks India if the promoters are not given additional stake above their 4 percent holding at the time of the deal by way of preferential allotment of shares that is dilutive for shareholders, people aware of the matter indicated.

A clause on increasing the promoter’s stake to 20 percent in the proposed merged entity had caused some confusion. Moneycontrol has learnt from several people that the clause is not a dealbreaker and Invesco will be concerned only if a stake purchase is incorporated in the deal.

As long as any share purchase by the Zee promoters is in the future and not part of the deal, Invesco may give it a green light, the people clarified.

“Increasing the stake is an option only in the future – it is not part of the deal at the time of the merger,” a person with direct knowledge of the matter told Moneycontrol.

This will be put to vote and will require a majority of the minority shareholders to endorse it as part of the deal approval process.

“Post the merger, if the deal fructifies, any stake hike by the Essel Group via preferential allotment of shares will have to be approved by the board, pass the muster of a majority of the minority vote, where Invesco will have a dominant position to vote against it if it deems so, and that should be enough comfort for a public market shareholder,” a person said.

Sources suggested that this clarity will comfort Invesco in backing the deal, which could be value accretive for shareholders, especially with a strong board representation by global player Sony.

“As corporate governance improves and visibility of the deal gets clearer, Invesco is likely to reduce the heat on Zee Entertainment,” a person with direct knowledge said.

Invesco is not in favour of an extraordinary general meeting if the Sony deal goes through transparently. It is not looking to “disrupt”" the Sony deal in the interest of all shareholders, another person with direct knowledge told Moneycontrol.

Invesco and Zee Entertainment did not offer any comment to Moneycontrol on this story.

Invesco, the single largest investor in Zee Entertainment, had sought an EGM for a change of the company board, citing corporate governance concerns. The Zee board rejected the requisition and it led to a legal fight.

In the meantime, Zee Entertainment announced a merger with Sony, which is currently in an exclusivity period. Sony will be the sole promoter of the merged entity with the shareholders of Sony India owning 53 percent and those of Zee holding the rest. Sony shareholders also agreed to infuse about $1.58 billion.