Is Invesco arm twisting Punit Goenka for refusing its merger deal with a Strategic Group?

Demonstrating their continued faith in Goenka’s leadership and the Board’s handling of the various governance related matters, Invesco voted in favour of the reappointment of Punit Goenka as the MD & CEO of the Company, as recently as September 2020, read a statement from  ZEEL Board.

The board of directors of the Zee Entertainment Enterprises Limited held a meeting on 12 October 2021, to consider a note addressed to them, by the managing director (MD) and chief executive officer (CEO) of the Company, Punit Goenka. The Board Note explained certain events that transpired between Punit Goenka and Aroon Balani and Bhavtosh Vajpayee, representatives of Invesco Developing Markets Fund (formerly Invesco Oppenheimer Developing Markets Fund) and OFI Global China Fund LLC (collectively, Invesco).

According to the Board Note, a deal was presented by Aroon Balani and Bhavtosh Vajpayee, representatives of Invesco, to Punit Goenka in February 2021, involving the merger of the Company and certain entities owned by a large Indian group (Strategic Group). As per the deal presented to Punit Goenka, upon completion of the aforesaid merger, the Strategic Group would have held a majority stake in the merged entity (the Merged Entity) and Punit Goenka would have been appointed as the MD and CEO of the Merged Entity.

Punit Goenka expressed his apprehension to Invesco that as the merging entities of the Strategic Group were over-valued, it would result in a loss to the stakeholders of the Company. In response, Invesco told Punit Goenka that the valuations of the entities belonging to the Strategic Group had been unilaterally “agreed” by Invesco, there was no room for further negotiations on the commercial terms of the deal and no data would be forthcoming to diligence and verify the valuation being attributed to the entities belonging to the Strategic Group. The Company’s management team informed the Board that in their considered view, the valuation attributed to the entities belonging to the Strategic Group could have been inflated by at least Rs 10,000 crores. This would mean that if the proposed deal would have been approved, the shareholders of the Company would have suffered a loss of at least Rs 10,000 crores.

Invesco, through several correspondences acknowledged Goenka’s reputation, experience, capability as a professional and insisted that he would be paramount in leading the operations and business of the merged entity.

The board meeting further noted that when Punit Goenka expressed governance concerns in relation to the deal (especially surrounding the valuation gaps in the merging entities of the Strategic Group)’ he was informed by Invesco that the deal would be consummated with or without him, even though Invesco believed that he was best suited to lead the Merged Entity and his absence would erode shareholder value. Invesco time and again reminded Goenka that if he were to refuse to progress the deal, he and his family would lose out.  The promoter group of the Company was being offered 3.99% shareholding of the Merged Entity i.e. no dilution in the existing stake of the promoter group of the Company, and Goenka was further offered employee stock options (ESOPs) (with no vesting conditions), representing approx. 4% of the shareholding of the Merged Entity. Accordingly, the existing promoter group of the Company along with  Goenka would have held up to 7-8% in the Merged Entity.

Invesco’s stance in their Open Letter that they “will 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. Accordingly, public securities markets have been misinformed by Invesco.

The Board also took note of an open letter issued on 11 October 2021, by Justin M. Leverenz, the Chief Investment Officer of Invesco Developing Markets Equities, on behalf of Invesco (Open Letter). The Board will separately respond to certain unjustified comments made in the Open Letter. Accordingly, the Board is constrained to conclude that Invesco’s actions over the past few weeks, have been motivated by circumstances that are extraneous to the Company’s business or performance, or issues of corporate governance or public interest.

The revelation by Punit Goenka and the ZEEL board explains the reason for Invesco’s hostile behaviour in the recent past and its motive behind the continued campaign to remove Punit Goenka from running the show of ZEEL.