October 14, 2021 12:34 PM
By now, the ordinary shareholders in Zee’s must be a bewildered lot. Their company has flirted with one merger offer, almost sealed a second, directors have quit the board, the largest shareholder has asked for the CEO’s exit and, in all of this, they are yet to be consulted or allowed to vote.
Indeed, as these dramatic events have unfolded, the shareholders see that they are the last to find out what’s been going on in their company.
Zee’s disclosure to the stock exchange on October 12 reveals that it received a note from Managing Director Puneet Goenka related to a potential offer for merger from “certain entities owned by a large Indian group”.
The offer came in February 2021 and Goenka in his wisdom declined the same and also did not inform the Board about it until two days back. His justification for not doing so is that, among other things, he “was not provided with any information on the valuation justifying the deal” and in his “considered view as the MD and CEO of the company, the deal was not in the best interests of the public shareholders”.
In his position as CEO of the company, Goenka is within his rights to turn down any deal at an early stage if he sees little merit in it, though it is a little uncommon for a company’s top executive not to bring to its Board’s attention any offer of an M&A or one that will alter the shareholding pattern of the company.
In the same note to the board, Goenka states that in the preliminary offer that was considered, the shares of Zee’s were valued at RS 220 each, with a total valuation of the public shareholding of the company as RS 21,129 crore. In addition, the potential acquirer would “infuse 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 percent”.
How different is this deal from the merger with Sony Pictures Networks India that Goenka himself had stitched whereby the promoters of Sony would invest $1.57 billion in the merged entity as growth capital and hold 53 percent stake in it. Yet, while the Board of the company was happy to disclose the non-binding term sheet of the potential Sony merger, it wasn’t deemed fit to even discuss the earlier offer, let alone share it with the other shareholders.
Both transactions incidentally called for differential treatment of shareholders, with Subhash Chandra and his family getting additional shares as non-compete fee. The assumption that all other shareholders would be comfortable with this favoured treatment of the promoters, shows how their views have been taken for granted throughout this saga.
On the day when, as Goenka said, the potential deal (with a “large Indian group”) was discussed with him by Invesco’s representatives Aroon Balani and Bhavtosh Vajpayee, Zee’s shares were trading at Rs 201 a piece, which meant the offer was 10 percent above the market price. On September 9 – just before Invesco sent its first letter to Zee seeking changes in its Board, the stock had dropped to Rs 183.
What if the Sony deal hadn’t come up and the stock had continued its downward trajectory? Shouldn’t shareholders have had a say in deciding the company’s future or at least have had their company’s Board deliberate upon it? It is, after all, the prerogative of the Board to evaluate all decisions that could impact the strategic direction of the company, including a deal which could have changed its very structure. A Board is expected to act in the best interest of the shareholders and not the promoters or sponsors.
The fact that this offer was not placed in front of the Board for its considered view also raises questions on what role it has played. Public shareholders certainly have a right to feel that not only have they been kept in the dark about potentially significant changes but that their interests haven’t been paramount.
What’s worse, this strange battle for control is increasingly taking on the curious narrative of pitting the company’s management against its own shareholders. After all, Invesco isn’t an outside entity embarked on a hostile takeover bid for Zee. It is the company’s largest shareholder.
Perhaps it is time for other shareholders who have been unusually quiet for long, to step up and demand some answers.