Zee-Sony merger deal not in the best interests of small shareholders: Invesco
Invesco, the largest shareholder of Zee Entertainment Enterprises (ZEEL), has raised questions about the company’s proposed merger with Sony Pictures, saying the transaction is not in the best interests of all shareholders and will only benefit ‘developers, who have defaulted on their bank loans. .
The US fund said the non-binding agreement between ZEEL and Sony “offers” a 2% stake to Zee promoters under the guise of “non-compete” fees, even though the current chief executive and CEO, Punit Goenka, would continue to lead the merged entity for the next five years.
“This is dilutive for all other shareholders, which we consider unfair. At the very least, we would expect that such largesse would be conditional on the CEO / CEO leaving said post (which raises the ‘no-compete’ scenario) or be structured in the form of temporal acquisitions and performance-related ESOPs, which as shareholders we welcome as a transparent way to reward performance and leadership, ”said Invesco, which owns 18% of ZEEL, in an open letter to the company’s shareholders .
Invesco, which is waging a legal battle with ZEEL’s board of directors, said Zee-Sony’s announcement casually mentioned that promoter Zee’s family would have the right to increase their stake from 4% to 20%, without specifying how this significant change would actually occur. “Will this change Sony’s majority control in the merged entity?” Will it involve open market purchases, warrants, or some other financial instrument? In the latter case, will the price of said instruments / warrants to the promoter’s family be priced in such a way as to benefit them to the detriment of ordinary shareholders? ” he asked.
The corporate battle erupted after Invesco called for the removal of three directors, including Goenka, just days before the annual general meeting (AGM), citing a lack of corporate governance. While two directors, Manish Chokhani and Ashok Kurien, left the board a day before the AGM, Goenka stayed on. Within days, ZEEL’s board of directors cleared a proposed merger with Japanese tech and entertainment leader Sony Pictures. Following a court order, ZEEL called a board meeting and rejected Invesco’s proposal to call an extraordinary general meeting of shareholders to remove Goenka and appoint six of its nominees.
In its Monday letter, Invesco said the lack of clarity on key aspects of Zee-Sony’s announcement should concern all shareholders. “We will gladly assess the transaction in a constructive manner if and when additional information becomes available. However, we have also noted the timing of this announcement and its non-binding nature. As a result, we currently see it as a cover-up on Zee’s part to distract and distract from the main issues facing the company, ”said the Oppenheimer-backed company.
Invesco said since his requisition of the EGM on September 11, he had witnessed the bizarre spectacle of Zee’s leadership, with the support of his current board of directors, going to great lengths to deny statutory rights common shareholders. “These actions, which are conspicuously taken in the” best interests of all shareholders “as Zee’s communications claim, are, in fact, indicative of a management team that puts their personal interests ahead of their interests. institution that she runs, of her employees and all other shareholders, as well as a board of directors whose permissive culture has allowed this behavior and its consequences, ”said Invesco.
“This is precisely why we believe that Zee’s board of directors should be strengthened with independent directors who take their jobs seriously, who vigorously debate vital decisions and who serve as gatekeepers of all shareholder interests,” said declared the fund.
The letter written by Justin Leverenz, chief investment officer, Developing Markets Equities, said he has been a significant shareholder of ZEEL for over a decade and believes Zee has a good future. “We are disappointed that Zee management has resorted to a reckless public relations campaign in response to the overwhelming demand from shareholders for management changes at Zee,” he said.
“Our initiative is driven by our belief that the Zee family of promoters, with the support of their current board of directors, continue to escape accountability to their common shareholders, who own 96 percent of Zee’s shares. This lack of governance oversight by Zee’s current board of directors allowed Zee to become deeply involved in the financial distress of its founding family, as stated in Sebi’s letter of June 17, 2021, ”he said. -he declares.