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Reliance Industries Ltd on Wednesday said differences between Zee Entertainment Enterprises Ltd’s managing director Punit Goenka and Invesco, the company’s single-largest shareholder, over how the Goenka family would raise its stake in the broadcaster led to a collapse in merger talks with RIL’s media properties.

Mukesh Ambani-led RIL proposed to merge its media properties with Zee in February after Invesco helped arrange discussions between Goenka and RIL’s representatives, the company said in a statement on Wednesday evening, adding that it regretted being dragged into a dispute between Zee and the US investment firm.

The statement came after Invesco, earlier on Wednesday, said Reliance had approached Zee for a merger. A day earlier, Zee said Goenka rejected a deal proposed by Invesco to merge Zee with entities owned by an unnamed “large" Indian strategic group.

The flurry of statements come amid a bitter battle between Invesco and Zee’s founding family. Invesco is seeking to recast the board of Zee and oust Goenka, the son of Zee’s founder Subhash Chandra. Zee has challenged Invesco’s attempt to restructure the board in courts and alleged that the US investor is trying to take over India’s largest publicly-traded broadcaster at the behest of another company.

Apart from challenging Invesco in courts, Zee has also initiated merger talks with Sony Pictures Networks India.

In its statement, Reliance said differences arose between Goenka and Invesco over Zee’s founding family seeking to increase its stake by subscribing to preferential warrants. “The investors (Invesco) seemed to be of the view that the founders could always increase their stake through market purchases," Reliance said.

Earlier, Invesco said as Zee’s single-largest shareholder, it was only trying to facilitate a transaction between Zee and Reliance and nothing more.

“We wish to make clear that the potential transaction proposed by Reliance (the “Strategic Group" referenced but not disclosed in the 12 October 2021 communication by Zee) was negotiated by and between Reliance and Mr. Goenka and others associated with Zee’s promoter family," a spokesperson for Invesco said on Wednesday.

Invesco’s comments came after Zee hit back at the US firm on Tuesday, alleging that the investor’s activism, including demanding a special shareholder meeting, followed Goenka rejecting a deal Invesco was trying to facilitate.

In the proposed deal, Reliance sought to control 60% of the merged entity by investing 14,000 crore. Investors, executives and proxy advisory firms have raised several questions about the month-long public spat and the numerous disclosures made by the parties involved. First, how did Goenka, without having done due diligence or seeking help from investment bankers, concluded, as spelt out in his letter, that the media business of Reliance was inflated by 10,000 crore?

Second, why did Goenka not discuss the proposal with the Zee board even though he and his father negotiated the proposed merger with Reliance?

An email sent to Zee seeking comment went unanswered.

“If such a transaction was being negotiated by the promoters of Zee with Reliance executives, isn’t it the fiduciary duty on the part of the promoters of Zee to have tabled this proposal with the board of Zee? After all, the board of Zee could have looked at forming a committee to look into the proposed transaction?" said an executive familiar with the development.

Finally, Reliance’s proposed transaction with Zee questions Invesco’s narrative on corporate governance. This is because, under Reliance’s proposed merger with Zee, Reliance had agreed to give up to 8% equity in the merged entity to Chandra.

On Monday, Justin Leverenz, chief investment officer of Invesco Developing Markets Equities, questioned why Zee was getting a 2% additional equity from Sony as part of the proposed merger when all other remaining shareholders would see dilution of their stakes in the merged entity.

Leverenz questioned if the Sony-Zee merger, announced on 22 September, favours Chandra, who owns 3.99%, at the expense of other investors.

An email sent to Invesco seeking comment went unanswered.

“The bottom line is that 78% of public shareholders lose out in both proposed mergers —the first with Reliance and the second with Sony, which is currently being pursued by its board. This is because Reliance agreed to give up to 8% equity to the promoter of Zee at the expense of other shareholders. Sony, too, has allowed the promoter of Zee to hold up to 4% equity in the merged entity. So what is the basis for Invesco to question Zee’s proposed transaction was not done in a transparent manner," said a second executive, an investor in Zee.

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