Punit Goenka Alleges Invesco Sought Zee Entertainment Merger With An Indian Group
In February, Invesco Developing Markets Fund approached Punit Goenka with a deal to merge Zee Entertainment Enterprises Ltd. with a large Indian group, claims a letter written by Goenka to the company's board of directors.
The letter was considered by the board in a meeting on Tuesday and filed with stock exchanges. This is the first public disclosure Goenka has made about being approached with such a deal by the company's largest shareholder.
Goenka says he refused to take the deal to the board as it overvalued entities of the Indian group, lacked information on valuation and commercial terms.
His letter, accompanying the filing, draws attention to two points:
That the merger proposal by Invesco's representatives involved him continuing as managing director and chief executive officer of the merged entity. This stands in contrast with Invesco's efforts to oust Goenka from the board, the letter implies without saying as much.
It also points out that the merger proposal sought to take Goenka's family shareholding to 7% from the current 3.99%. This, too, stands in contrast with Invesco's recent statement saying it would oppose any merger that unfairly rewards the Zee Entertainment promoter family at the expense of public shareholders.
Invesco said as much, earlier in the week, in an open letter to Zee Entertainment's shareholders.
Invesco, along with affiliate OFI Global China Fund, owns 17.88% of Zee Entertainment and is the company's single largest shareholder. It is currently locked in a legal dispute with the company and its board over its attempts to oust Goenka and appoint six new independent directors to Zee Entertainment's board. The two foreign funds have sought a extraordinary general meeting of shareholders to put these resolutions to vote. The company board has rejected the EGM requisition. The matter is currently in court.
Responding to Goenka's letter, the Zee Entertainment board said it had also taken cognisance of the open letter written by Invesco to the company's shareholders earlier this week.
"Invesco's actions over the past few weeks have been motivated by circumstances that are extraneous to the company's business or performance, or issues of corporate governance or public interest," the board said in the filing to stock exchanges.
Goenka's Letter To The Zee Board
In the letter, undated, Goenka, son of Zee Entertainment promoter Subhash Chandra, claims Aroon Balani and Bhavtosh Vajpayee, representatives of Invesco and OFI Global, presented a deal involving the merger of the company with certain entities of a large Indian group.
The name of the group has not been mentioned in the letter.
According to the proposal, the Indian group would hold a majority stake in the merged entity. Goenka would run its operations as MD and CEO.
Goenka told the board that he was "surprised" that a public shareholder of the company was directly negotiating a merger deal without involvement of the board or management.
He says he was asked to put his queries regarding the deal directly to the Indian group. Invesco had already finalised the merger terms with the Indian group and there was no room for negotiation or due diligence, Goenka says. Invesco denied him details regarding the valuation of the Indian group entities and wouldn't share commercial terms either, he says.
...all my efforts were rebuffed and I was not provided with any information or documents for the same. In fact, I was asked to ensure that the Company consummates the deal within a period of just 5 days!!Punit Goenka Letter To Zee Entertainment Board
The valuation attributed to the entities of the Indian group was "grossly inflated", Goenka's letter says, while sharing details of the merger proposal.
The shares of Zee Entertainment were valued at Rs 220 per share.
The total valuation of the public shareholding of the company is at Rs 21,129 crore.
The value of the entities of the Indian group was put at Rs 17,500 crore.
The Indian group would infuse Rs 14,000 crore into the merged entity, taking its shareholding to 60%.
Goenka would continue as MD and CEO of the merged entity.
His family would get a 3.99% shareholding in the merged entity and Goenka would get stock options worth 4% of the merged entity.
Goenka claims in the letter that he told Balani and Vajpayee that he couldn't take the deal to the Zee Entertainment board as he thought the valuation of the Indian group entities was inflated by at least Rs 10,000 crore and there wasn't sufficient information available.
He was told that the deal would be consummated "with or without" him, the letter says.
Interestingly, Goenka offered the two a counter proposal that in lieu of stock options would allow his family to purchase a higher stake in the merged entity at a lower valuation, but was rejected, the letter says.
He concludes this was a "blatant attempt" by Invesco to assume "de-facto control" of Zee Entertainment.
BloombergQuint has yet to receive Invesco's response to the assertions in Goenka's letter.