India Is No Place for U.S.-Style Investor Activism

(Bloomberg Opinion) -- Aggressive, no-holds-barred shareholder activism has met with plenty of cultural resistance in Asia, most notably in Japan and South Korea. Now, it’s India’s turn to curb American investors’ enthusiasm.

Or so it would seem from the latest twist in the fight over Zee Entertainment Ltd., the country’s largest publicly traded television network. “Sometimes, it happens that a company must be saved from its own shareholders, however well-intentioned,” said Justice G.S. Patel of the Bombay High Court, temporarily restraining Atlanta-based Invesco Developing Markets Fund from calling an investors meeting to oust the board.

The injunction is unlikely to be the end of the corporate battle, though it does boost founder Subhash Chandra’s chances of hanging on to his crown jewel with only a 4% stake, versus Invesco’s 18%.

Earlier this year, Invesco tried to facilitate talks between Reliance Industries Ltd. and the media mogul’s elder son, Punit Goenka, the chief executive officer. Those discussions, which Goenka disclosed only recently, failed because they would most certainly have seen the asset pass into Reliance Chairman Mukesh Ambani’s orbit.

In six years, Ambani, Asia’s richest man, has created the largest digital business in India from scratch. Zee’s streaming service, whose 80 million active users spend more than three hours a month on the platform on average, plans to cater to non-Hindi-speaking audiences. It would have been a snug fit for the cheap Android phone that Alphabet Inc. has custom-built for Ambani. JioPhone Next, which will go on sale soon, is all about breaking down communication barriers in a country with 22 official languages and a bewildering array of dialects.

Once its interest became publicly known, though, Reliance issued a statement saying that it respects all founders and has “never resorted to any hostile transactions.” In other words, it had walked away for good. But has it? If Invesco is so determined to boot the Chandra-Goenka duo out, surely someone else has to step in. 

To keep Zee in his family, Chandra, 70, has mounted a hasty marriage with Sony Group Corp.’s Indian unit. The arrangement, which is nonbinding at present, will keep son Goenka in the saddle and give his father a chance to raise his stake to a more secure 20%. Reliance, which was offering some of its own media assets for a different merger, was letting the founders keep only 7%-8% of the combined entity. Invesco, which in that instance had opposed the family’s demand of preferential warrants to raise its stake, believes the Sony deal to be loaded in favor of the founders.  

Might a better transaction be possible? Shareholders can’t seem to make up their minds. They bid the share price higher when Invesco announced its plan to oust the board, and again when management fought back by unveiling the Sony merger. The stock ended 4.3% higher Tuesday after the court injunction came as a setback for Invesco. But it fell as much 3.5% in early trade on Wednesday. 

A merger with Sony, regardless of whether it treats founders better than minority shareholders, at least makes business sense. If Invesco wants to push ahead with a more aggressive alternative, either Reliance will have to reassert its eagerness, or another suitor must emerge. An independent board, which Invesco is emphasizing, is usually just a stopgap to find a white knight. Knowing how little directors actually matter — the current Zee board wasn’t even informed of the Reliance offer — nobody expects them to take the lead in unlocking value.

The Indian business landscape favors firms that are either substantially owned by a family, or controlled by a multinational. Give shareholders one or the other, and their appetite for change is more than satiated. Activism that’s more radical than that only causes indigestion. To come out ahead, Invesco might need to tweak its tactics.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

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