Invesco agrees to support the merger of Zee and Sony
It looks like finally there is a truce between the Essel Group, that promoted Zee Entertainment, and Invesco Fund, the largest shareholder in Zee. Incidentally, Invesco Developing Markets Fund owns 18% in Zee Entertainment and had been vehemently seeking the removal of Punit Goenka from the top job.
However, now Invesco has agreed to support the Zee-Sony merger and also not to insist on the removal of Punit Goenka.
Earlier in the week, the Bombay High Court ruled in favour of Invesco stating that the investor was perfectly within their rights to demand a vote on the CEO. In response, Invesco has expressed satisfaction that the Bombay High Court ruling, had reaffirmed and upheld the rights of shareholders in India.
They also went to the extent of calling the Bombay HC ruling a boon for corporate governance and a win for shareholder democracy.
There were two demands of Invesco that had become a bone of contention. The first pertained to the merger of Zee and Sony since the merger was not only going to dilute the stake of Invesco in the combined entity but also raise the stake of the Essel family through a non-compete fee.
While the stand of Invesco on the non-compete fee is not yet clear, they have already stated that they would not raise any objection to the merger of Zee and Sony.
Regarding the second issue of directors, the 2 directors other than Punit Goenka had already resigned. In the case of Punit Goenka, Invesco has stated that they had no objection to his continuance.
They expressed confidence that post the merger of Zee and Sony, the board would be largely reconstituted and therefore the demands that Invesco was making for a more rational and meaningful representation would automatically be met.
In a way, it is an acknowledgement of two facts. Firstly, the merger of Zee and Sony would bring about the much needed consolidation between the two dominant players in the media sector. That is expected to be long term positive for the shareholders of the combined entity.
Secondly, it also acknowledges that the Zee promoters have shown commitment and delivered on their promises, despite a challenging situation last year.
Of course, a lot will still depend on whether Zee decides to pursue the case in the Supreme Court. But, now it looks redundant since both the Essel group and Invesco have decided to smoke the peace pipe, Invesco gets better valuations and that is what they require as investors.
For the Essel family they still retain management control of Zee-Sony combine. That is what the markets, the lenders and institutions will be comfortable with.
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