Why Invesco pulled the plug on ZEEL’s Punit Goenka

Three weeks after the release of the report, Zee’s largest investor said it does not see a future for the elder son of founder Subhash Chandra at the company.

On Monday night, Zee shared with BSE a six-page letter, dated 11 September, where Invesco demanded the company hold an extraordinary general meeting and ask shareholders to vote on new resolutions, including sacking Goenka, removing two other independent directors, and appointing six new independent directors.

The two independent directors, Manish Chokhani and Ashok Kurien, stepped down promptly, even though they were seeking re-appointment from shareholders at the company’s annual general meeting held on Tuesday.

Zee’s response was terse: It “will take necessary action as per applicable law".

According to rules governing companies, Zee has time until 2 October or 21 days from the day an investor owning more than 10% shares in the company calls for an EGM, failing which Invesco can itself ask shareholders, after giving them a 21-day notice, to vote on the proposals.

On Tuesday, the management ducked the only question asked on Invesco’s activism when Zee held its AGM.

What led Invesco, which through Invesco Developing Market Fund and OFI Global China Fund Llc, owns 17.88% in the company, to move with such brute force?

The decision was triggered by developments at Dish TV India Ltd, a note by a proxy advisory firm and a 55% plunge in the value of Zee shares held by one of the world’s biggest fund managers, said three executives privy to the development.

“Seeing what the State Bank-controlled Yes Bank is doing at Dish has given confidence to Invesco," said one of the three people. “Investors have raised corporate governance issues, but many funds were otherwise sitting on the sidelines given Zee’s influence," said the executive, referring to Chandra’s allegiance to the ruling party.

On 6 September, Dish TV told BSE that Yes Bank, which owned 25.63% of the firm, had sought the replacement of five directors, including managing director Jawahar Goel, the younger brother of Chandra.

Only on 1 September, Institutional Investor Advisory Services India Ltd (IiAS), the proxy advisory firm, put out a note asking investors to reject the re-appointment of directors Chokhani and Kurien. IiAS also reminded shareholders that CEO Goenka’s remuneration was higher than approved in last year’s AGM.

“We believe the board must bring in the right mix of professionals that have an understanding of the media and the digital business. Further, having the erstwhile promoters on board may impede the directors’ ability to take hard decisions," IiAS said in its note.

“IiAS briefed Invesco with the developments at Zee and what was happening at Dish TV," said a second executive.

“Look, we are not the loudest voice and just one more voice in the room," said Amit Tandon, founder of IiAS, saying that the proxy advisory firm speaks with all investors. But a 55% drop in the value of Zee shares since Invesco picked a 9.4% stake on 31 July 2019 is what peeved those managing the fund.

Invesco spent ₹3,894 crore to buy a 10.14% stake in Zee at ₹400 a share two years ago, according to an analysis by Mint. This was in addition to the 7.74% stake it already held. At the time, Invesco’s total holding in Zee was worth ₹6,606.6 crore.

On 11 September, Zee’s shares were trading at ₹183 a share, implying a 55% drop in Invesco’s two-year-old investment to ₹1,360 crore. Invesco’s total holding in Zee halved to ₹3,141 crore.

“I understand they (Invesco) really ran out of patience. In fact, I’m surprised they held on for so long without asking for a board seat or a change in management," said a third executive, a former boss at an IT services firm.

An email sent to Invesco seeking comment went unanswered.

“The fight for control of both Dish and Zee could be a long and protracted one as promoters may not give up that easily," said a fourth executive.

“Zee was plum for this kind of shareholder activism as it has a large free float, tiny promoter holding, good operating cash flows, and the stock was trading at compelling valuations," said Shriram Subramanian, founder and managing director of proxy advisory firm InGovern Research. “However, it is surprising that Invesco has not yet articulated any clear plan for the shareholders."