In a historic decision, two of India’s most significant media network properties, Zee Entertainment Enterprises Ltd (ZEEL) and Sony Pictures Networks India (SPNI), entered into an exclusive and non-binding agreement. But, Invesco and OFI Global China Fund LLC, which together hold about a 17.9% stake in the ZEEL network, seems not happy with the merger between the networks and appointment of Punit Goenka as the Managing Director and CEO, despite the move being welcomed by the industry analysts, minority shareholders and stock market with a 35 percent increase in the share price of ZEEL. SPNI’s revenue for FY’20 stood at Rs 5,846 Crore and profit at Rs 976 Crore. ZEEL’s revenue for FY’21 clocked Rs 7,730 Crore and consolidated profit at Rs 793 Crore. The merged entity’s potential sales are calculated to be Rs 12,500-15,000 Crore and profit potential to be Rs 1800-2000 crore. The combined market cap as on date is calculated to be Rs 50,000 crore (based on the ratio announced).In a move that could derail the prospective future of the merged entity, Invesco, on September 11, wrote a letter demanding an extraordinary general meeting (EGM) to remove ZEEL’s Chief Executive and Managing Director Punit Goenka and induct six of their nominees on the Board. Within days after this, ZEEL announced the merger deal with its rival Sony Pictures, creating a $2 billion revenue company with a 25 percent market share.
In a letter dated September 23, the institutional investors reiterated ZEEL to stick to its fiduciary duties and not violate its statutory obligations to convoke the EGM as demanded by Invesco on September 11. The investors had called for the removal of non-executive directors, Ashok Kurien and Manish Chokhani, and appointing six independent directors—Surendra Singh Sirohi, Naina Krishna Murthy, Rohan Dhamija, Aruna Sharma, Srinivasa Rao Addepalli and Gaurav Mehta. Both Chokhani and Kurien resigned from the Board later.
While the media networks have made no official statement, InGovern Research, an independent proxy advisory firm, released a series of tweets on the issue questioning the motive of Invesco. One of the Tweets by InGovern stated, “Sony comes in as a white knight for ZEE. Nothing wrong with two companies proposing a merger as CEOs can initiate merger discussions and then approach shareholders for a vote. Invesco did not have an alternate plan, and hence, it would be surprising if it is not supportive of this merger”.
Sony comes in as a white knight for ZEE. Nothing wrong in 2 companies proposing a merger as CEOs can initiate merger discussions and then approach shareholders for vote.
Invesco did not have alternate plan and hence, it would be surprising if it is not supportive of this merger.
— InGovern Research (@InGovern) September 22, 2021
As a fund, Invesco would be interested in financial returns and clean governance. With Sony as a majority shareholder and a likely reconstituted Board, the merged entity would be the best solution Invesco could have hoped for it.
Punit Goenka’s capabilities as a MD of a leading media company was not questioned. Invesco was unhappy about the governance of Zee due to the group company issues. So, as the proposed MD of the merger entity, Punit Goenka should not be a concern, said the firm in another Tweet.
Punit Goenka's capabilities as a MD of a leading media company was not questioned. Invesco was unhappy about the governance of Zee due to the group company issues. So, Punit Goenka as the proposed MD of the merger entity should not be a concern.
— InGovern Research (@InGovern) September 22, 2021
Invesco’s objectives behind ousting Goenka from his role would raise serious questions if that were the case.
A Tweet by Samir Arora, Founder, Helios Capital, reiterates the same, “Precisely. No logic has been given as to why these new directors are good for the Company and what specific strengths they can bring to the Company and Board.”
Precisely. No logic has been given as to why these new directors are good for the company and what specific strengths they can bring to the company and board. https://t.co/DjFVzqRcI8
— Samir Arora (@Iamsamirarora) September 14, 2021
At the Company’s AGM held earlier this month, a shareholder commented that Invesco and OFI Global should come to the AGM and explain their position as to why they want to remove Goenka.
“Invesco is having some problems. If they have any problem, they should take us into confidence. Also, they should come to the AGM and explain what is wrong with the Company. I hope Invesco is listening. They should not just show the power by the shareholding. They should also come back to the shareholders and explain why we should vote for them. We will be open-minded, and we will decide on merits,” the shareholder added.
However, it is surprising that Invesco has not yet articulated any clear alternate plan for the shareholders. The new proposed directors have to be evaluated on their capabilities.
The new directors proposed by Invesco are Surendra Singh Sirohi, Aruna Sharma, Rohan Dhamija, Gaurav Mehta, Srinivasa Rao Addepalli and Naina Krishna Murthy. Amongst the names proposed by Invesco, none of the directors has over 15 years of relevant experience in the Corporate, Technology or Media & Entertainment sector. Additionally, suggested directors like Naina Krishna Murthy, Surendra Singh Sirohi, Rohan Dhamija and Gaurav Mehta do not have significant experience on the Board of publicly listed entities which is harmful to the Company’s stability in the future.
One of the names proposed, Aruna Sharma, has been involved in a controversy on the Commonwealth Games broadcast deal that the CBI, ED and FEMA probed. During her stint with Prasar Bharati as the Director-General of Doordarshan, she was involved in the controversial SIS-Live Commonwealth Games broadcast deal. A probe was conducted against her. A departmental inquiry was initiated over the award of a contract for the production and coverage of CWG games by the Information & Broadcasting Ministry.
The above points raise questions on the new proposed Board’s abilities to strengthen corporate governance or provide valuable guidance to the Company’s management.
According to the industry observers, the Sony-Zee merged entity will emerge as one of the country’s largest Media and Entertainment companies, potentially complement each other in various verticals.
ZEEL’s has a strong presence across broadcasting, movies, music, digital, live entertainment and theatre businesses, both within India and overseas with 49 channels. They have more than 260,000 hours of television content andhave the most extensive Hindi film library globally. They have more than 1.3 billion viewership and presence in 190+ countries. Also, have rights to more than 4,800 movie titles across various languages. Sony Pictures Networks India reaches out to over 700 million viewers in India. It is available in 167 countries. The combined entity will have 75 channels and clock more than 2 billion viewership.Sony’s strength in Sports Entertainment will help both the players position themselves as a renowned team to bid for some of the most prominent properties like IPL.
Moreover, the proposed infusion of working capital worth $1.575 billion (roughly Rs 11,627 crore) will help them chart a bullish plan. The OTT sector in India, which Netflix, Amazon Prime and Disney+Hotstar dominate, could face tight competition with– Sony LIV and Zee5merging. The deal between Sony and Zee also raises competition for Disney-Star collaboration, and Viacom18 has been leading the content market.
ZEE stock had rocketed by 35 percent post the announcement of the deal. Some investors also see the removal of Punit Goenka as a rising risk on continuity of leadership and in terms of strategic directions and low-cost model of ZEEL. In spite of the myriad of positive aspects the mega merger brings into the table, Invesco is trying to sabotage the merger deal through the corporate bullying tactics for unknown reasons.