Zee Entertainment shares end 17% after Invesco drops EGM demand

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Zee Entertainment

Zee Entertainment shares surged over 17% in the afternoon trade on Thursday, after its largest shareholder Invesco dropped the demand for a rejig of the company's board. Invesco Developing Markets Fund announced yesterday that it had decided not to pursue an extraordinary general meeting (EGM) to add six independent directors. Here are the major highlights. 

When and how did the issue start?

  • In September 2021, Zee Entertainment finalized the merger with Sony Pictures. 
  • Post the deal, Sony Pictures Network will have a 50.86% stake in the merged company. Essel Holdings Ltd and public shareholding will be 3.99% and 45.15%, respectively.
  • It was decided that Punit Goenka will lead the merged company as the MD and CEO. The investors were also informed that as part of the deal, Goenka faced a vote of no-confidence from its longest-standing institution shareholders - Invesco Developing Markets Fund.
  • The two Invesco funds own a 17.88% stake in the company. They sought the removal of Goenka. Also, they wanted to appoint six new independent directors on the board of Zee Entertainment citing governance concerns.
  • Zee was against the removal of Goenka, and hence the case went to court.
  • Yesterday, a division bench of the Bombay High Court vacated its earlier order restraining the National Company Law Tribunal (NCLT) to hear an appeal by Invesco. The Zee Entertainment stock tanked 5% following the news.

The big announcements by Invesco

  • Post yesterday's decision by the Bombay High Court, Zee Entertainment has the option to approach the Supreme Court against the High Court order within three weeks. If they fail to do so, the Mumbai bench of NCLT can resume the hearing in the matter.
  • Invesco on Thursday morning informed that it has decided to withdraw its requisition notice that sought the removal of MD and CEO Punit Goenka from the board of ZEE.
  • Invesco also said that it supports the Zee-Sony Pictures Network India merger that was proposed in September 2021.
  • It believes following the merger, the board of the newly combined company will be substantially reconstituted. It will achieve its objective of strengthening board oversight of the company.
  • Invesco will continue to monitor the progress of the proposed merger. If the merger is not completed as currently proposed, Invesco will retain the right to requisition a fresh EGM.

Zee Entertainment: Brokerage radar

  • According to Kotak Securities, Zee’s merger with Sony offers various opportunities. The merged entity would become India’s number one entertainment broadcast network with 28-30% share in TV viewership with a portfolio including meaningful strength in Hindi and regional entertainment, and weak presence in sports genre and digital. 
  • The research firm said that merger synergies of Rs 5-7 billion over 2-3 years would improve profitability and enable investments. 
  • Any investment from James Murdoch/Uday Shankar in Viacom18 (per unauthenticated media articles) would result in a rise in competitive intensity for Zee. 
  • Kotak Securities has an ‘Add’ rating on the stock with a target price of Rs 350 per share.