Why Reliance walked in and walked out of the Zee Deal

In the midst of the ongoing fracas between Invesco Fund and the Zee management, led by Punit Goenka, it emerges that Reliance walked in and then walked out of the deal to buy a strategic stake in Zee Entertainment. The Reliance group has confirmed that the deal fell through as they were uncomfortable with the tiff between Invesco and Punit Goenka.

Punit Goenka, son of Subhash Chandra, is the MD & CEO of Zee Entertainment. However, the Subhash Chandra family has just 3.44% in Zee Entertainment while Invesco Fund is the largest stakeholder in Zee with 17.88%. The tiff arose as Invesco felt that the promoter family was exercising clout disproportionate to its holdings.

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Invesco, on its part, confirmed that it had just tried to facilitate the deal between Reliance and Zee, which needed a big fund infusion. Meanwhile, Punit Goenka has accused Invesco of working at the behest of large media interests to take over Zee. In the process, RIL did not want to get embroiled in a deal what was seen as anti-promoter.

The Zee side of the story is that they were uncomfortable since Invesco was trying to push the deal very hard, which was not what they expected from a large investor. Zee also felt that the offer of Rs.220 per share and valuation of Rs.21,130 crore for Zee was not in the largest interests of small shareholders of Zee.

Invesco has a different story. Apparently, they tried to facilitate the deal and negotiations happened between Reliance and Chandra family. However, Invesco did not accept that the Chandra family should get a stake of 4% in the merged entity and Punit Goenka continues as the MD and CEO. Invesco did not want any special shareholder preferences.

Check - Subhash Chandra Takes Up a Good Deal on his Zee Stake

In a way, this is also roiling the Zee-Sony deal. Invesco is uncomfortable with Sony deal as post-merger, its own stake will be down to 8.4% while Zee promoters will have 4% in the merged entity due to the non-compete fee of 2% stake paid by Sony. Invesco feels there was no question of non-compete fee when Punit Goenka will be CEO for next 5 years.

For now any deal looks like Catch-22 with the largest institutional investor and the original promoter family not seeing eye to eye.