Invesco Developing Markets Fund (Invesco), in a statement, has revealed that it was the Reliance group that was keen on a deal with Zee Entertainment Enterprises Ltd (ZEEL) – a fact hidden by the founding group in the charges levelled on Tuesday in the ongoing war between the company and its largest investor with an 18% stake. In a hard-hitting press statement, Invesco also says, "We specifically note that the implication that we as a shareholder would seek out a transaction for Zee that is dilutive to the long-term interests of ordinary shareholders, including ourselves, simply defies logic."
In the new twists and turns that seem to be emerging almost on a daily basis, this reaction is to a statement by ZEEL on Tuesday, where the board of directors reportedly considered a note from Punit Goenka, managing director (MD) and chief executive officer (CEO) of ZEEL alluding to another merger deal pushed by its largest overseas shareholder that would have robbed the shareholders of at least Rs10,000 crore. He had not named the 'largest group' interested in the deal.
Appearing to call his bluff, Invesco has named Reliance as the interested party before the ZEEL board had suddenly announced a merger with Sony Pictures Networks India (Sony India) that would allow Mr Goenka to continue as MD and CEO and also enhance the promoter stake up from 3.9% that it currently holds. Clearly, Invesco has hardened its stand since the Reliance offer.
Invesco's response says, "We wish to make clear that the potential transaction proposed by Reliance (the strategic group referenced but not disclosed in the 12 October 2021 communication by Zee) was negotiated by and between Reliance and Mr (Punit) Goenka and others associated with Zee's promoter family. The role of Invesco, as Zee's single largest shareholder, was to help facilitate that potential transaction and nothing more."
Reliance, however, says it regrets being drawn into thedispute between ZEEL and Invesco.
In a statement, it says, "In February- March 2021, Invesco assisted Reliance in arranging discussions directly between our representatives and Mr Goenka, member of the founder family and MD of Zee. We had made a broad proposal to merge our media properties with Zee at fair valuations of Zee and all our properties. The valuations of Zee and our properties were arrived at based on the same parameters. The proposal sought to harness the strengths of all the merging entities and would have helped to create substantial value for all, including the shareholders of Zee."
Interestingly, Punit Goenka would have retained his post even under the Reliance deal, but Invesco is pushing for his exit.
RIL accepted that its proposal included the continuation of Mr Goenka as MD and the issue of ESOPs (employee stock option plans) to management, including Mr Goenka.
"However, differences arose between Mr Goenka and Invesco concerning a requirement of the founding family for increasing their stake by subscribing to preferential warrants. The investors seemed to view that the founders could always increase their stake through market purchases. At Reliance, we respect all founders and have never resorted to any hostile transactions. So, we did not proceed further," it added.
Invesco says it has made various efforts to bring ZEEL back to good health over the past two years. "Discussions around strategic alignments have been just one part of this effort. Zee's 12th October disclosure is yet another tactic to delay an extraordinary general meeting (EGM) that will give shareholders their right under Indian law to vote for a slate of independent trustees and pave the way for a healthier future for ZEEL," it says.
In a regulator filing, ZEEL has said, Mr 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 company's stakeholders. "Invesco time and again reminded Mr Goenka that if he were to refuse to progress the deal, he and his family would lose out."
In the note, Mr Goenka said that the company's management team had 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 Rs10,000 crore.
"In response, Invesco told Mr 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," ZEEL had alleged.
Invesco's response is to point out, "The recent interest of Sony, as well as the previous interest of Reliance, should be a reminder to all ZEEL shareholders of the enormous value that lies in this company, much in contrast to its dismal performance under the current leadership and board over the last few years," the single largest stakeholder of ZEEL says.
Meanwhile, on Wednesday, the Bombay High Court asked Invesco and OFI Global China Fund to file their affidavit by 20th October. The HC will hear the case on 21 October 2021.
Earlier this month, ZEEL had also moved the High Court against Invesco and OFI Global's requisition for an extra-ordinary general meeting (EGM) to discuss various issues, including removing the company's MD and CEO.
The company's plea before the Court is to declare the call for EGM invalid after Invesco got the NCLT nod seeking a meeting by the ZEE board.