Alacrity is possibly the best way to describe what has taken place at Invesco. The Atlanta-headquartered global fund house has been in the news for how it has moved on its investment in Zee Entertainment Enterprises Limited (ZEEL). Through its developing markets fund, it holds a 17.88 per cent stake in the Subhash Chandra-promoted company, a well-known name in the Indian media and entertainment industry. The big news has been Invesco calling for an extraordinary general meeting (EGM) to remove Punit Goenka as director of the company, just a day before the ZEEL AGM on Tuesday. Goenka, Chandra's son, is also the company's Managing Director & CEO. What is not commonly known, though, is how the investor quietly, over the last one month, went about the process of firming up the independent director slots at ZEEL.
Sources close to the developments say Invesco reached out to potential candidates with a brief "that no promoter would eventually be left and the need was a competent set of independent directors." In another most dramatic development, Ashok Kurien and Manish Chokhani, two non-executive, non-independent directors at ZEEL known to be close to Chandra, stepped down from their position only a day before they sought reappointment at the AGM. Now, Invesco's plan is to appoint six independent directors to the board of ZEEL at the EGM that is expected to be held in about a month and could effectively bring in a new management at the entertainment company.
The symptoms were evident last November when Subodh Kumar and Neharika Vora stepped down as non-independent and independent director, respectively, of ZEEL. At that point, though there was no official word on the reason, it is learnt that lapses in corporate governance led to the decision. As it is, ZEEL's promoters had their backs to the wall with a large chunk of their holding having been pledged (from over 50%, they hold just 4% today) with the foray into infrastructure and the subsequent credit squeeze placing the group in a serious debt trap.
According to Gaurav Dua, Head (Capital Market Strategy), Sharekhan by BNP Paribas, ZEEL, as a listed stock, has suffered due to promoter-related issues rather than anything related to its operational and financial performance. "With the promoters' stake coming down to only around 4% now, it is time for the current promoter-driven management to make way for the professional team to run the business. The steps taken by the key shareholders is a positive movement for the stock," he maintains.
Industry trackers have been speaking of the web of companies that controls Chandra's businesses, among them media and entertainment and infrastructure. One investment banker says, "it is impossible to understand the structure and how money moves between companies. At the core, that is what creates the whole fear around the lack of corporate governance." This August, SEBI, according to media reports, barred 15 entities and individuals at a couple of broking houses for "allegedly indulging in insider trading of ZEEL shares in August 2020." Again, last April, another controversy blew up when the News Broadcasters Federation of India wrote to Goenka, then Chairman of Broadcasters Audience Research Council (BARC), on allegations of bribes having been paid to escape harassment from vigilance officers. This was widely reported.
Cut to the present, and Invesco's decision, explains the investment banker, was triggered by a potential default in the payment schedule. "To Chandra's credit, the small promoter holding was still enough to retain control for a long time since the board remained with him. That has changed all of a sudden."
Shriram Subramanian, Founder and Managing Director, InGovern Research Services, a proxy advisory firm, says "shareholders should consider that the entire board constitution needs a rethink." Elaborating on the point, he questions how Punit Goenka, a non-independent, executive director, has been appointed as an audit committee member. "It is strange that the board allowed such an induction of a promoter-executive director into the committee. Also, with just a 3.99 per cent shareholding, the promoter (Punit Goenka) is being given a 46 per cent increase in remuneration. This AGM was an occasion for change, and this also prompted shareholders who were patient for a while to call for an EGM and seek his removal."
In an emailed response to queries from Business Today, Invesco spokesperson Jeaneen Terrio said: "We have been investors in Zee for over a decade. We have initiated this action to strengthen board governance at the company." A Zee spokesperson said, "The company will take necessary action as per applicable law."
In many ways, this could well be the foundation for bringing in a CEO from outside. A top official at a rival broadcaster is clear that Invesco will only play for time before setting up ZEEL for a sale. "There is a tightly-run business and it makes sense to let go," he says. According to Subramanian, shareholders are holding the board accountable for underperformance of the company and for destroying shareholder wealth by not preventing related-party transactions. "The fact that the stock is up 40 per cent just on the news of a change in the board and the likely change in promoters shows how much investors wanted it," he explains. Even as the boardroom drama is playing out, and the stock has surged, reports have emerged of ace investor Rakesh Jhunjhunwala buying 50 lakh shares of ZEEL in a bulk deal.
Meanwhile, at ZEEL's AGM, Goenka did not elaborate on any of the issues related to Invesco and restricted the discussion of the company's performance during the pandemic.
"Though the management transition could create challenges in the short term, the move is strategically positive and can potentially result in re-rating of the company's valuation multiples," thinks Sharekhan's Dua. Besides, the change in the management, he adds, could augur well for the possible entry of a strategic investor into the company. "There is also the potential unlocking of value by monetisation of interesting assets like the Zee5 OTT platform."
Being in the entertainment business has seen ZEEL's promoters going through many a bumpy ride. Subhash Chandra's battle with the likes of Rupert Murdoch or the political class on several occasions are well-documented. That said, the very ambitious foray into new businesses has seen him lose control of ZEEL, his prized jewel. It is a setback the likes of which he has never encountered.
As his son Punit fights the biggest battle of his life to save his position as ZEEL's director, there is a lot at stake. Chandra, who cut his teeth in the rice trading business will, having taken a step back from the entertainment business, need to move his coins very quickly. There is now a real danger of his family being ousted from ZEEL altogether.
At this point, the proxy firms are not sitting quiet either. As Subramanian puts it quite bluntly, "We will have to evaluate the merits of the proposed new directors [suggested by Invesco] and their credibility in running a media company. Punit Goenka or the promoter family may see a graceful exit if they are able to find a white knight and effect an acquisition or merger."
Whether Chandra and Goenka can manage to get a white knight at all--since it's a race against time with the EGM round the corner--is anybody's guess. As the battle for Zee intensifies, the next few weeks will doubtless see a riveting drama unfolding at the entertainment company.
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