ZEEL has responded to both the issues: non-compete fee and the increase of promoter group’s stake to 20%
Amid the ongoing tussle between Zee Entertainment Enterprises Limited (ZEEL) and its largest single shareholder Invesco, the broadcaster has released a response to the latter’s claims. While Invesco has raised two specific concerns about the proposed deal with Sony, ZEEL has responded to both the issues: non-compete fee and the increase of promoter group’s stake to 20%. ZEEL has emphasised that it will approach all the shareholders of the company for their approval on Sony deal. “All shareholders, including Invesco will get the opportunity to evaluate and consider the deal in full at that stage. In the meantime, we urge Invesco to stop publishing half truths about the proposed deal in the media and let the board of directors of the Company (Board) and the management work towards finalising this deal (which is clearly for the benefit of all stakeholders),” ZEEL stated in the BSE filing.
As per the non-binding agreement with Sony, the promoters of Sony will become the majority shareholders of the merged company. While the erstwhile promoters of the company can not engage in any competing business with the merged company, the promoters of Sony will be transferring approx. 2.11% shares in the merged company to the promoter group. As highlighted by ZEEL, this will be a secondary transfer from the promoters of Sony (not a primary issuance) and it will not be dilutive to any of the shareholders of the company as it is a private arrangement between two shareholders. The broadcaster also added that this arrangement was disclosed to all the shareholders.
As per the statement, Punit Goenka, MD and CEO, ZEEL, was approached with another deal by Invesco in February. In the deal proposed by Invesco, 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 approximately four percent of the shareholding of the merged entity. Accordingly, the existing promoter group of the company along with Goenka would have held up to seven to eight percent in 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,” ZEEL stated.
Invesco has raised concerns stating that the Zee-Sony announcement casually mentions that the Zee promoter family will have the right to raise their stake from four percent to 20%, without specifying any manner in which this meaningful change will actually happen. ZEEL noted that it was earlier mentioned the promoter family is free to increase its shareholding from the current four percent to up to 20%, in a manner that is in accordance with applicable law, indicating that the promoter shareholding in the merged entity will be capped at 20%.
“Board finds it difficult to ignore the manner in which Invesco has tried to alter the meaning of the terms disclosed as part of the Sony Deal and again gives us reason to believe that Invesco’s actions are motivated by the events that transpired during February-April 2021,” ZEEL stated referring to the deal proposed by Invesco.
ZEEL also alleged that Invesco has shown a lack of transparency itself. Until the disclosure made by the company to the stock exchanges on October 12, 2021, Invesco did not disclose the fact that they were negotiating a deal on behalf of the company without any authority, even while criticising the Sony deal by way of the open letter, ZEEL stated.
“We are dismayed, that in the Open Letter, Invesco has cast unsubstantiated aspersions on the management of the company and has made comments in relation to the “permissive culture” of the board. It would be worth noting here that five out of the six existing independent directors on the board of the company have been appointed after Invesco’s investment in 2019 and that Invesco was consulted and their views were positively considered at the time of making such appointments,” ZEEL added.