ZEE 4.0
Shareholder Activism in Zee Entertainment, and its merger with
Sony India.
Article published as on Wednesday, 22nd September, 2021 at 2:00 p.m.
On 14th September Zee entertainment rose 40% from approximately
187 to 260.
What was the reason for such a spectacular price rise?
The answer is Shareholder Activism!
Shareholder activism by institutional investor Invesco (it’s an investment management company)
A bit of a background
story…
Zee group had huge exposure to infrastructure space and after
the 2018 IL&FS crisis, the group faced problems with the debt payment.
To pay off the debts the promoters of Zee group started selling
their assets.
And in this process, they also had to sell a majority of their
stake in Zee entertainment.
(Their share is now down to 3.99% from 43.07% at the end of 2017)
Invesco Fund is one such buyer that purchased the shares offered
by the promoters. ]
Their Buying price was around Rs 400 and happened around August
of 2019.
Their current share in Zee entertainment is 7.74%
And another Fund that has joined hands with Invesco is OFI
global Fund China with 10.14%
Thus totaling 17.88% of the total share.
Here is the circular uploaded on the BSE website of 13th
September around 10 o’clock at late night.
(Circular link to click here)
Merger with Sony?
Today morning at around 7:47 a.m the circular uploaded on BSE
stated that the board has agreed to a ‘non –binding term sheet’ for merger with
Sony Pictures Network India Ltd.
Here few details of the term sheet are provided. (Link here)
Merger with Sony is said to be positive and the stock price
indeed reacted in that manner.
Merger with Sony is said to be positive and the stock price
indeed reacted in that manner.
Reason for removal of Directors?
The reason for the removal request of few directors including
Punit Goenka is rumored to be poor corporate governance, poor financial
performance in FY20 and FY21, and also depressed share price.
Personal comments on this event:
Invesco, questioned the management and proposed their removal
because they had bought the shares at Rs 400 2 years ago and now when the price
is around 170-180 any shareholder would naturally question, why the share price
is at such low levels?
Since they have 7.74% shares, it is in their best interest that
the company performs well, so that share price could also increase.
If we had any other institutional investor such as any insurance
company or mutual fund AMC, probably they wouldn’t have questioned the
management in such a manner. They would have instead look for an opportune time
and took an exit, or would have simply stayed invested.
SEBI stewardship code is very helpful which makes it compulsory
for Mutual funds to vote on company resolution.
And for this reason, we have recently seen shareholders opposing
many resolutions in recent time,
Proxy advisors such as IiAS, SES and InGovern also have a role to
play in advising Shareholders on how to vote on resolutions.
What is the future now?
Such Activities are positive because questioning management and
firing them for poor performance makes them accountable. If they cannot perform
then someone else who can do the Job better shall be hired.
And this creates Long term shareholder value.
In a manner, this event is positive even for the promoters.
If the company is managed well, with strong corporate
governance, the share price will rise.
And when share price would rise they would also benefit as
promoters still own a 3.99% stake in the company.
Key events for Zee Entertainment are
(1) Shareholders vote on the merger with Sony India
(2) Call of an EGM for the Removal of Punit Goenka.
Overall, such activities and events might sometimes even lead to
lower share price,
(As we saw in the case of Infosys when its CEO- Vishal Sikka
resigned in 2017
And since then price of Infosys has grown more than 3 times)
Good governance is always appreciated and rewarded in the long
term.
Update as
on 7th-October-2021
In the recent days, instead of calling an EGM and voting democratically, the board of Zee has still not called an EGM. And publishing articles targeting ‘Invesco’
Here
is the headline of the article published by Zeebiz of Zee business
#DeshKaZee: Invesco a puppet in Chinas conspiracy
against ZEEL-Sony mega-merger?
Link
of the article here
Based
on the above events, Zee entertainment after all doesn’t seem shareholder
friendly company. Also the merger with Sony has not yet been approved by the shareholders, it’s even possible that
the merger doesn’t happens after all. These are some risks the investor of Zee
entertainment has to consider.
Here
Subhash Chandra talks about how Invesco wants to take over the company.
Invesco
is not a company, neither is its interest in running the company.
Invesco
is like a mutual fund company, all it wants is better governance and better
performance so that it can earn a return on its investment in Zee
entertainment.
I
remember when Essel group was in trouble and Zee Entertainment shares were
tumbling down, all news channels except Zee business were covering this.
I
thought maybe it’s because of their policy that they talk or publish about any
news regarding their own company.
But
after reading these Articles against Invesco and supporting the promoters of
Zee.
It
seems promoters are misusing their media business. Also, these articles seem
undoubtedly biased articles.
This
again reflects poorly on the side of the management and the promoters.
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