Mumbai: Media baron Subash Chandra is busy saving the $1.575 billion merger deal of Zee Entertainment Enterprise Limited (ZEEL) with Sony Pictures Networks India (SPNI), after Invesco Developing Markets Funds and OFI Global China Fund, LLC (Invesco), the largest shareholder with 18% stake called for an extraordinary general meeting (EGM), seeking to remove Punit Goenka, managing director of ZEEL, from the board along with induction of six independent directors. 


Goenka's appointment is seen as an integral part of the merger deal with Sony, and this development could throw a spanner in the works of the entire agreement, feel analysts. 


The ZEEL board termed Invesco's requisition as "invalid and illegal" and has accordingly conveyed its inability to convene the EGM to Invesco. 


The ZEEL-SPNI merger deal:


On September 23, ZEEL agreed to merge itself with SPNI with a majority of 52.93% of the merged entity held by SPNI shareholders while the remaining 47.07% of the merged entity to be held by ZEEL shareholders, making the combined entity. It was agreed that Mr. Punit Goenka would continue to be the Managing Director and CEO of the merged entity. Further, specific non-compete arrangements will be agreed upon between the promoters of ZEEL and the promoters of SPNI. According to the term sheet, the promoter family is free to increase its shareholding from the current 4% to up to 20% in a manner that is under applicable law. The majority of the Board of Directors of the merged entity was to be nominated by Sony Group. 


Invesco's call for EGM to oust Mr. Goenka as MD


Invesco's demand for EGM suggests the largest ZEE shareholder wants a complete break from the previous promoters. Besides seeking the removal of ZEEL's MD and CEO Punit Goenka and two other directors from the company's board, Invesco wants the board to recast with the appointment of six additional independent directors in a "free and democratic manner."


In an open letter to the other shareholders, Invesco highlighted the need to strengthen the board's independence in light of the governance and leadership "failures" and a "prolonged underperformance" of the media giant.


Invesco has expressed concerns over some clauses in the proposed deal, such as the non-compete fee to be awarded to the Zee promoters, claiming that it will "enrich the Zee's founding family at the expense of ordinary shareholders."


Reliance's entry and exit in the ZEEL deal


In February, Mukesh Ambani-led Reliance Industries entered into negotiations with Puneet Goenka to merge Reliance media properties with Zee at fair valuations. Still, the deal couldn't go through due to differences between Mr. Goenka and Invesco for the founding family's requirement to increase their stake by subscribing to preferential warrants.


Reliance had even gone to the extent of making board-level proposals. 


"The valuations of Zee and our properties were arrived at based on the same parameters. The proposal sought to harness the strengths of all the merging entities and would have helped to create substantial value for all, including the shareholders of Zee," said a Reliance statement. 


According to Reliance, the investors (Invesco) seemed to view that the founders could always increase their stake through market purchases.


"Reliance always endeavours to continue with the existing management of the investee companies and reward them for their performance. Accordingly, the proposal included a continuation of Mr. Goenka as Managing Director and an issue of ESOPs to management, including Mr. Goenka. At Reliance, we respect all founders and have never resorted to any hostile transactions. So, we did not proceed further," said the Reliance statement. 


However, the Goenka camp believes that its Reliance behind Invesco's proposal to scuttle the mega-merger deal with Sony. Subash Chandra appeared on its Zee News and hinted that a corporate house is behind Invesco's proposal with naming Mukesh Ambani or Reliance. 


Like the daily soaps it churns out, a lot of drama has been unfolding at Zee Entertainment. If Mr. Chandra will be able to save the deal is now a $1.65 billion question.