Invesco's merger deal proposal would have led to Rs 10,000 cr loss to shareholders: ZEEL

The company said that the American investment management firm had proposed a merger deal between the company and a large Indian group (Strategic Group) in February this year

e4m by Javed Farooqui
Updated: Oct 13, 2021 8:42 AM
punit goenka

A day after Invesco Developing Markets Equities had written an open letter to ZEEL shareholders, the company's management has retaliated by saying that the American investment management firm had proposed a merger deal between the company and a large Indian group (Strategic Group) in February this year.
It was also revealed that Invesco had unilaterally arrived at commercial terms with the large Indian Group which would have resulted in Rs 10,000 crore loss to the company's shareholders. The company didn't disclose the name of the large Indian group.
The company made this disclosure in a filing to the BSE following a board meeting to consider a Board Note addressed to them by the MD and CEO Punit Goenka. The Board Note explained certain events that transpired between Punit Goenka and Invesco representatives Aroon Balani and Bhavtosh Vajpayee.
The Board Note also said that the requisition notice for an Extraordinary General Meeting (EGM) and the events that have followed since “reaffirm the position taken by the Board that this is a blatant attempt by Invesco to assume de-facto control of the Company, in violation of applicable takeover regulations”.

According to the Board Note, a deal was presented by Aroon Balani and Bhavtosh Vajpayee to Goenka in February 2021, involving the merger of the company and certain entities owned by a large Indian group (Strategic Group). The Board Note also mentions that Invesco voted in favour of the reappointment of Punit Goenka as the MD & CEO of the company, as recently as September 2020.

As per the deal presented to Punit Goenka, upon completion of the aforesaid merger, the Strategic Group would have held a majority stake in the merged entity and Punit Goenka would have been appointed as the MD & CEO of the Merged Entity. The shares of the company were valued at Rs 220 per share, with a total valuation of the public shareholding of the company as Rs 21,129 crore; the value of entities owned by the Strategic Group was considered at Rs 17,500 crore.

The Strategic Group would have infused approximately Rs 14,000 crore of cash into the Merged Entity, pursuant to which the shareholding of the Strategic Group in the Merged Entity would increase to approximately 60%.

Further, the promoter group of the company was being offered 3.99% shareholding of the Merged Entity and Goenka was further offered employee stock options (ESOPs) (with no vesting conditions), representing approximately 4% of the shareholding of the Merged Entity. Accordingly, the existing promoter group of the company along with Goenka would have held up to 7-8% in the Merged Entity.

The deal, according to the Board Note, was first presented to Punit Goenka over a call scheduled on 23 February 2021, at 6 pm IST, with Aroon Balani and Bhavtosh Vajpayee. “I expressed my surprise at the deal being communicated to me by a public shareholder of the Company, without any prior involvement of the Management or the Board of the Company,” Goenka says in the Board Note.

According to the Board Note, Goenka expressed his apprehension to Invesco that as the merging entities of the Strategic Group were over-valued, it would result in a loss to the stakeholders of the Company. In response, Invesco told Punit Goenka that the valuations of the entities belonging to the Strategic Group had been unilaterally “agreed” by Invesco, there was no room for further negotiations on the commercial terms of the deal and no data would be forthcoming to diligence and verify the valuation being attributed to the entities belonging to the Strategic Group.

The company's management team informed the Board that in their considered view, the valuation attributed to the entities belonging to the Strategic Group could have been inflated by at least Rs 10,000 crore. “This would mean that if the proposed deal had been approved, the shareholders of the company would have suffered a loss of at least Rs 10,000 crore and insisted that he would be paramount in leading the operations and business of the Merged Entity,” the company said.

The Board Note claims that when Goenka expressed governance concerns in relation to the deal especially surrounding the valuation gaps in the merging entities of the Strategic Group, he was informed by Invesco that the deal would be consummated with or without him, even though Invesco believed that he was best suited to lead the Merged Entity and his absence would erode shareholder value. “Invesco time and again reminded Mr. Goenka that if he were to refuse to progress the deal, he and his family would lose out,” the Board Note stated.

“In light of the above, I believe that the manner in which Invesco conducted itself leads to violations of various laws, including securities laws. At an appropriate stage, various regulatory and investigating authorities may also need to be involved. The Requisition Notice and the events that have followed since, reaffirm the position taken by the Board that this is a blatant attempt by Invesco to assume de-facto control of the Company, in violation of applicable takeover regulations,” ZEEL claimed.

Responding to Invesco's assertion that it will firmly oppose any strategic deal structure that unfairly rewards select shareholders, such as the promoter family, at the expense of ordinary shareholders, the Board Note said that the assertion runs contrary to the very deal Invesco was proposing itself a few months ago. Accordingly, public securities markets have been misinformed by Invesco, it adds.

In its open letter to shareholders, Invesco had stated that the non-binding agreement between Sony-Zee “gifts” a 2% equity stake to the promoters of Zee in the guise of a “non-compete” is dilutive to all other shareholders.

The ZEEL board also took note of an open letter issued on 11 October 2021, by Mr. Justin M. Leverenz, the Chief Investment Officer of Invesco Developing Markets Equities, on behalf of Invesco. The Board will separately respond to certain unjustified comments made in the Open Letter.

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