Zee Entertainment Enterprises was in focus on Monday as its single largest shareholder, Invesco, has written a new letter to the company's board to call for an extraordinary general meeting (EGM). Invesco is reiterating its demand for the reconstitution of Zee's board and the removal of Punit Goenka as director.

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"The Board of Directors of ZEEL at its meeting held on September 22, 2021, has approved the execution of a non-binding term sheet with Sony Pictures Networks India Private Limited, in relation to a potential transaction involving a composite scheme of arrangement for the merger of the Company and Sony India and infusion of growth capital by the promoters of Sony India into Sony India as part of the merger," Zee Entertainment said on September 22.

Now with this new letter, where does the game of brinkmanship between Invesco and the Zee board stand at the moment? To discuss this in detail, CNBC-TV18 spoke with experts JN Gupta, MD, Stakeholders Empowerment Services, and Abneesh Roy of Edelweiss Securities.

Asked whether the media giant's current board is well within its powers to take these decisions while the EGM process goes on, Gupta cited the example of the election process in India, where the Election Commission has a moral code of conduct which begins when that election dates are announced.

There is nothing like that in the corporate governance code, he said. When an EGM notice is given, the company's board does not stop to only start working normally only after the EGM is conducted. “I would disagree with this concept that the entire thing would put to be put to hold under until the EGM is held,” he said.

Also, both proposals will go to shareholders for approval, he said.

“So, if the current board has decided to go ahead with whatever they have decided, it has not lost sanctity because that proposal also will be put to the same body to which the EGM notice is going to be put,” said Gupta. If the same body is deciding on two proposals, there is nothing wrong with that, and it is not that the board has lost the moral sanctity to do that, he said.

Roy is of the view that the letter was in fact a bit surprising given there are three weeks for ZEE to announce on the EGM.

According to him, this doesn't change much, because now a lot of investors would also feel that the ultimate end goal would have been a strategic player. Many investors also feel that operationally, Punit Goenka has done a decent job.

“ZEE promoters and the largest minority shareholder will need to work on this because for the EGM, Invesco would also need around 33 percent more support. Similarly, for the Sony deal, the ZEE promoters would need around 70 percent more support, and they would need that out of balance 82 percent if Invesco doesn't support,” said Roy.

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He said it is good to see that Invesco is also saying that there is a need to evaluate the Sony deal with an independent board, and ZEE is valuable with or without the deal, which is a positive. A lot of investors feel that most of the concerns are getting addressed. But anything on the EGM does lead to volatility because then the merger and approvals could get delayed.

Roy expects volatility in the stock to continue till clarity emerges on the EGM front. One will also have to see how the approvals from the different regulators come through, he said.

Both parties seem to be working with a similar end goal, although currently, it looks like that their process is slightly different, he said.

Key takeaways

The current board is well within its rights to take any decision. Ultimately, whether or not the Invesco proposal goes through, all these proposals that go through will be through a democratic election, where the shareholders will have to give a 50 percent vote of approval.

For the entire conversation, watch the video

First Published:Sept 27, 2021 3:06 PM IST