Punit Goenka accuses Invesco of arm-twisting after he refused to merge Zee with a large Indian group

After Invesco said it will firmly oppose any strategic deal structure that unfairly rewards select shareholders, such as the promoter family, at the expense of ordinary shareholders, Zee MD and CEO Punit Goenka has accused the largest investors of threatening and arm-twisting him because he rejected a proposal brought by Invesco to merge Zee with a large Indian group (strategic group) earlier this year in February.

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Even as Goenka did not name the “large Indian group (strategic group)”, the shares of Network18 Media and Investments jumped 20% to Rs 73.05 on Tuesday amid speculations.

It may be recalled that Zee was reported to be in merger talks with Viacom18 in June 2021. Earlier, Viacom18 was in talks with Sony last year.

In a statutory filing on Tuesday, Zee disclosed a note written by Goenka to the board.

As per Invesco’s proposal, after completion of the merger, the “strategic group” would have held a majority stake in the merged entity and Goenka would have been appointed as the MD and CEO of the merged entity.

“Punit Goenka expressed his apprehension to Invesco that as the merging entities of the strategic group were overvalued, it would result in a loss to the stakeholders of the company,” the company said in an exchange filing. Zee said the deal was presented by Aroon Balani and Bhavtosh Vajpayee, representatives of Invesco, to Goenka in February 2021, involving the merger of the company and certain entities owned by the strategic group.

“In my view, the valuation attributed to the entities belonging to the strategic group was inflated by at least Rs 10,000 crore. When I conveyed the reasons to Balani and Vajpayee, I was told that that the deal would be consummated with or without me even though they believed that I was best suited to lead the merged company,” Goenka said in a note to the ZEEL board.

“Balani and Vajpayee maintained that I should have no objections to the deal for the following reasons: no dilution for the promoter group as the promoter group would get additional shares to retain its existing 3.99 per cent even in the merged entity and additional 4 per cent stake would be issued through ESOPs in the merged entity,” Goenka said in the note. “This would result in total promoter shareholding of 7 -8 per cent at no cost to promoter group or me and I would continue to run the business as the MD and CEO of the merged entity,” he said.

According to Goenka, Invesco’s stance in their Open Letter, released on Monday, that they “will firmly oppose any strategic deal structure that unfairly rewards select shareholders, such as the promoter family, at the expense of ordinary shareholders”, runs contrary to the very deal Invesco was proposing itself a few months ago. Invesco had last month sought an EGM for the removal of Goenka and appoint six directors as the deal with the strategic group apparently failed to materialise.

“On account of governance concerns in relation to the deal and considering my fiduciary duties to the board and shareholders of the company, I expressed my inability to take the deal to the board and other stakeholders of the company,” Goenka said in the note to the ZEEL board.

“During our discussions, in lieu of stock options, I offered that the promoter group would infuse additional cash in the merged entity against which the merged entity would issue warrants to the promoter group, at the same value which the strategic group attributed to the company,” he said. This proposal was rejected by Invesco.

“I believe that the manner in which Invesco conducted itself leads to violations of various laws including securities laws. At an appropriate stage, various regulatory and investigating authorities may also need to be involved,” Goenka said.

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