MUMBAI: In an escalation of the ongoing battle for the control of Zee Entertainment Enterprises Ltd, ZEE informed the stock exchanges on Tuesday that Invesco Developing Markets Fund pushed for the merger of the media network with certain entities owned by a “large Indian group” (strategic group) as early as February this year.
As per the proposal presented to ZEE MD and CEO Punit Goenka by Aroon Balani and Bhavtosh Vajpayee, representing ZEE’s largest shareholder, after completion of the merger, the “strategic group” would have held a majority stake in the merged entity and Goenka would have been appointed as the MD & CEO of the merged entity, the company said in an exchange filing.
“Punit Goenka expressed his apprehension to Invesco that as the merging entities of the strategic group were overvalued, it would result in a loss to the stakeholders of the company,” ZEE said.
Without naming the group, which is believed to be a strong player in the Indian media and entertainment business, ZEE pointed out that when Goenka expressed governance concerns in relation to the deal, especially surrounding the valuation gaps, he was informed by Invesco that the deal would be consummated with or without him.
The ZEE board, in its meeting held Tuesday, discussed the open letter addressed to them by Goenka.
Goenka communicated to the board that, when the deal was presented to him, the shares of ZEE were valued at Rs 220 per share, with total valuation of the public shareholding of the company as Rs 21,129 crore (Rs 211.290 billion). The value of entities owned by the strategic group was considered at Rs 17,500 crore (Rs 175bn).
ZEE’s shares are currently trading at Rs 303.20 on NSE.
Further, the said strategic group would infuse approximately Rs 14,000 crore (Rs 140bn) of cash into the merged entity, pursuant to which the shareholding of the group would increase to around 60%, as per Goenka.
In addition, Goenka was also offered employee stock options (ESOPs) with no vesting conditions, representing approximately 4% of the shareholding of the merged entity.
However, Goenka rejected the deal “on account of governance concerns in relation to the deal”.
“In my view, the valuation attributed to the entities belonging to the strategic group was inflated by at least Rs 10,000 crore (Rs 100bn),” Goenka said.
Invesco, along with OFI Global China Fund LLC, holds a 17.88% stake in ZEE and has been pressing for an extraordinary general meeting (EGM) to discuss various issues, including the removal of Goenka and the appointment of its nominees of the board of the Indian media major.
Earlier on Monday, in an open letter to ZEE shareholders, Invesco has expressed concern about some of the terms of Sony India’s proposed acquisition of ZEE, which it claims favour the promoters over ordinary shareholders.
“Balani and Vajpayee maintained that I should have no objections to the deal for the following reasons: no dilution for the promoter group as the promoter group would get additional shares to retain its existing 3.99 per cent even in the merged entity and additional 4 per cent stake would be issued through ESOPs in the merged entity,” Goenka said in the note. “This would result in total promoter shareholding of 7-8% at no cost to promoter group or me and I would continue to run the business as the MD and CEO of the merged entity,” he said.
According to Goenka, Invesco’s stance in their Open Letter released on Monday, that they “will firmly oppose any strategic deal structure that unfairly rewards select shareholders, such as the promoter family, at the expense of ordinary shareholders”, runs contrary to the very deal Invesco was proposing itself a few months ago.
Meanwhile, shares of Network18 Media and Investments jumped 20% to Rs 73.05 on Tuesday amid speculation about an impending merger deal.
To read the corporate filing released by ZEE on the Bombay Stock Exchange, click here…
