Reliance-Zee merger proposal disclosure clouds Invesco’s intent on ousting Goenka, says proxy firms

Ayushi Kar Mumbai | Updated on October 13, 2021

The disclosure made by Invesco that a proposal to merge Reliance Industries’ media business with Zee raises doubts over the American investment firm’s initial claim to oust Punit Goenka citing corporate governance issues, according to proxy advisory firms.

Invesco had first asked for Goenka’s ouster on September 11 in a letter to Zee Entertainment’s board of directors asking to hold an extraordinary shareholders meeting. The letter raised corporate governance issues. Subsequent letters flagged concerns around Goenka's plan to merge Zee with Sony Picture but did not mention that there was an earlier proposed deal with Reliance.

From a shareholder’s perspective, the motivation behind Invesco’s persistence to remove Goenka has become unclear. “Other shareholders would now view the Invesco EGM requisition as a motivated move. It will also bring to question whether the six directors proposed by Invesco would be considered as Independent Directors.” Shriram Subramaniam, MD of InGovern Research Services, a corporate governance advisory firm told BusinessLine.

Experts suggested that Invesco could potentially also be landing into trouble with the regulator SEBI under the ambit of takeover code.

In the aftermath of Punit Goenka’s bombshell revelation, that the American investment company wanted to merge Zee with another Indian company without consulting the board, Invesco had to reveal that the Indian company was Reliance.

“If Reliance was interested, they should have directly approached the Board of Zee and proposed a deal. There were various rumours in the market and now it is clear that there was indeed some discussion in the past,” Subramaniam said.

Provide details

JN Gupta, MD of Stakeholders Empowerment Services, another advisory firm, believes that Invesco now has to provide details of what exactly occurred leading to the Zee- Reliance negotiations, and on whose behest (Zee promoter or Reliance) the negotiations began. “Only then can shareholders trust Invesco’s motives,” said Gupta.

The biggest wrench in Invesco’s path is that this new information is likely to bring forth scrutiny from SEBI. According to Subramaniam, “SEBI would need to scrutinise whether the actions of Invesco fall within the ambit of the takeover code. SEBI would also likely seek all documentary evidence from all parties concerned: Zee, Punit Goenka, Invesco and Reliance entities.”

From a shareholders’ perspective, a potential EGM does not mean that it is a clear-cut scenario of choosing between two merger options of either merging with Reliance or Sony. Reliance has publicly come out to say that the merger deal with Zee was dropped. The Zee-Sony deal has also not been presented to the shareholders as well. “Invesco still has to propose its alternative plan,” Gupta said.

Meanwhile, analysts remain divided on which potential merger, with Sony or with Reliance will be better. Karan Tuarani, Senior Vice President, Elara Capital, said, “We believe there will be very little synergies with TV18 (owned by Reliance) if the deal were to happen with or without Goenka. We continue to believe that merger with Sony is the most ideal situation for a company like Zee.”

Vivek Menon, Co-Founder and Managing Partner of NV Capital, said, “It is still premature to say how the synergies will pan out but our initial reaction would be that the Reliance-Zee entertainment deal would have enough financial muscle to be a force to reckon with. However, there are many niggling issues as to who will be the CEO of this combined entity, overlapping of same genre channels, amongst others grey areas that would need to be ironed out. So we would need to wait for further details to give a more informed view.”

Published on October 13, 2021

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