Zee Entertainment Enterprises Ltd (ZEEL) on Wednesday responded to questions raised by investment firm Invesco about the company's merger deal with Sony Pictures Networks India and clarified about some of the concerns raised.
Responding to the question on non-compete fee, the company said that the deal with Sony contemplates the promoters of Sony becoming the majority shareholders of the merged company, and in order to ensure that they can build value in the merged company, Sony insisted that the erstwhile promoters of the company do not engage in any competing business with the merged company.
"In lieu of such non-compete obligations being undertaken by the present promoter group, the promoters of Sony will be transferring approx. 2.11 per cent shares in the merged company to the promoter group. We would like to highlight here that this will be a secondary transfer from the promoters of Sony (not a primary issuance) and, accordingly, will not be dilutive to any of the shareholders of the company as it is a private arrangement between two shareholders," ZEEL said in a filing to the stock exchanges.
Raising questions over the proposed merger with Sony Pictures, Invesco, in an open letter to Zee shareholders, had said that the announcement to "gift additional 2 per cent equity to the founding family via a non-compete that seems entirely unjustified, while also providing a pathway for the founding family to raise its stake from 4 per cent to 20 per cent via methods...remain wholly opaque".
The company said that in the deal proposed by Invesco to ZEEL MD and CEO Punit Goenka, the promoter group of the company was being offered 3.99 per cent shareholding of the merged entity and Goenka was being further offered employee stock options (ESOPs) representing about 4 per cent of the shareholding of the merged entity.
"As such, we believe that Invesco's stance in their open letter 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 itself proposing only a few months ago," the exchange filing said.
ZEEL also rejected Invesco's charges that the deal with Sony Pictures does not specify the manner in which the Zee promoter group can increase stake in the merged entity to 20 per cent from 4 per cent.
"The public announcement released by the company clearly states that "the promoter family is free to increase its shareholding from the current - 4 per cent to up to 20 per cent, in a manner that is in accordance with applicable law", indicating that the promoter shareholding in the merged entity will be capped at 20 per cent," ZEEL said.
Referring to Invesco's offer for merger of Zee with Reliance-owned entities, ZEEL raised questions about the firm's "lack of transparency". "Invesco did not disclose the fact that they were negotiating a deal on behalf of the company without any authority, even while criticizing the Sony deal by way of the open letter," it said.
Invesco's actions of the past few weeks, open letters against the company and the board and their general lack of transparency, have given the board reason to believe that their actions are motivated by concerns entirely extraneous to any corporate governance issue, the filing said.
Invesco, which along with OFI Global China Fund LLC, holds a 17.88 per cent stake in ZEEL, has been pressing for an EGM to discuss various issues, including the removal of Goenka. Promoter Subhash Chandra's family presently holds around 4 per cent stake in ZEEL, and, as per the merger announced with Sony Picture Networks India, it can go up to 20 per cent. Goenka would also lead the merged entity as MD for five years.
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