Corporate governance. ‘Invesco’s insistence on EGM likely to be inconsequential for Zee’s Punit Goenka’

Even as the promoters of Zee Entertainment explore legal options to counter Invesco’s renewed demand to hold the extraordinary general meeting seeking the ouster of Punit Goenka from the company’s board, proxy advisory firms say that such a move is likely to be inconsequential with Sony Pictures agreeing to merge with Zee.

Shriram Subramanian, Founder and Managing Director of InGovern Research Services, the corporate advisory firm that was among the first to raise corporate governance concerns against Zee, said: “The EGM is likely to be inconsequential in ousting Punit Goenka from the board. In one scenario the shareholders could vote against ousting Goenka from the board.

“On the other hand, if he is voted out, then Goenka could come back the next day as an additional director as it happened in the case of Eicher. In any case when the merger happens Goenka comes back to the board since Sony has publicly come out in support of Goenka.”

Merger plan

On September 22, Zee Entertainment Enterprises and Sony Pictures Network India (SPNI) announced a merger plan.

‘Appoint additional directors’

A day later, Invesco, which owns about 18 per cent stake in Zee, sent a second letter to the company, insisting that the EGM should be held with the removal of promoter Punit Goenka as well as the appointment of six additional board of directors on the agenda. Invesco had sent its first letter before the deal with Sony was announced, seeking the removal of three directors, including Punit Goenka, and the appointment of six additional directors to the board.

Invesco, in its latest letter to Zee, said: “In this context, and against the backdrop of our EGM requisition, your disclosure of September 22 is symptomatic of the erratic manner in which important and serious decisions have been handled at the company.” Therefore, according to Invesco, decisions of strategic import need to follow not proceed actions towards the establishment of a proper and independent governance structure as determined by the company’s shareholders.

While experts maintain that Invesco is well within their rights to call for the EGM, and there is a 30-day window for the event to occur, they believe that it is unlikely the Invesco resolution will pass in the first place.

‘No clear roadmap’

JN Gupta, Managing Director of proxy advisory firm Stakeholders Empowerment Services, told BusinessLine : “The market hates uncertainty; on the one hand, you have a board that has approved a merger between two media behemoths, which is a clear roadmap...on the other hand, there is no clear roadmap with Invesco’s proposal. In this case, it is likely that as an investor, you will vote for the former.”

For Gupta, in the unlikely scenario where Invesco’s resolution passes, “the new board will have a Herculean task to not go the merger route since they will have to propose a better alternative. In which case, Punit Goenka will be back on board.”

Regarding Invesco calling Zee’s action to announce the merger erratic, at the back of Invesco’s request for an EGM, Subramanian said: “Regarding Invesco calling actions of the Zee board to be erratic seems odd as Zee and Sony have said that they have been in discussions for months. Moreover, Sony is not going to be putting its profitable India subsidiary and $1.575 billion into an erratic merger. Sony has also said they are doing thorough due diligence. While the motivations of a financial investor and a strategic investor are different, a financial investor can exit an investment at short notice, whereas a strategic investor will necessarily have to have a longer-term horizon.”

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