By Rajesh Kurup
Shareholders of Zee Entertainment Enterprises (ZEEL) are likely to support the proposed merger with Sony Pictures Networks India, as the deal would address several concerns that arose after its largest shareholder requested the removal of two directors and the CEO and CEO of the company, Punit Goenka. With the announcement of this agreement, the company’s roadmap is much clearer.
The merger addresses a key concern of institutional investors, which was to secure a strategic investor in the company after Invesco requested a change in the company’s board of directors and management. Following the sale of shares by the promoter group to Invesco Developing Markets Fund (formerly Invesco Oppenheimer Developing Markets Fund), promoters’ stake fell to less than 4% in the company. In June, foreign institutional investors held 57.46% and non-institutional investors 19.93% in ZEEL, and the remainder was owned by mutual funds, insurance companies and others.
Since the promoter’s shareholding was only 4%, management should have engaged in a protracted battle against the major shareholder without a white knight. “How long has management been able to hold on to something over which it has no control?” I think the timing for the merger proposal is right, ”said Vinit Bolinjkar, head of research at Ventura Securities. “Sony is also a strong brand, with a long presence in the Indian market and has grown through acquisitions. So he is aware of the cultural issues and what is required in the Indian media space, ”he added.
The deal would respond to some concerns of minority shareholders. Edelweiss in a note on Wednesday said: “At some point, minority investors should have been looking for a strategic investor, which is approached from the start.” The company would be a key candidate for reassessment if the corporate governance issues were resolved.
Ravishu Shah, managing director and co-head of valuation at RBSA Advisors, said retaining Goenka as managing director and CEO of the merger “could lead to challenges” due to the strained relationship between some institutional shareholders de ZEEL and its leadership, he said.
According to Ashwin Patil, senior research analyst (media) at LKP Securities, “Sure enough, Goenka finds a white knight to save herself from being forced to move. In addition, ZEEL would also be rated significantly.
“Invesco did not have an alternative plan and therefore I would find it surprising if it did not support this merger. As a fund, it would be interested in financial returns and clean governance. With Sony as the majority shareholder and a likely reconstituted board of directors, the merged entity would be the best solution Invesco could have hoped for, ”said Shriram Subramanian, founder and CEO of proxy consulting firm InGovern Research Services.
“Invesco was unhappy with the governance of Zee because of the issues related to the companies in the group. So Goenka as the proposed CEO of the merger entity should not be a concern, ”Subramanian added.