Officials from MFs to meet ZEEL officials for future strategy post-deal break-up
According to a BW BusinessWorld report, ZEEL Chairman R Gopalan has constituted an independent investigation committee headed by a retired High Court judge for a review of allegations levelled by SEBI
Senior officials from India's largest Mutual Funds (MFs) that hold a substantial stake in Zee Entertainment (ZEEL) will be meeting the board members and management of the company on Monday for the first time after Sony called off the merger on January 22, as per a BusinessWorld report.
Nearly 100 per cent public shareholders of ZEEL had voted in favour of the deal, which fell apart as Sony withdrew. The large shareholders are now meeting to understand from the management on their further course of action to steer the company, sources said. While it is widely speculated that MFs are routing for a management change at ZEEL, the sources said there was no such move yet from the MFs.
HSBC Value Fund, Tata Large Cap and Mid-cap Fund, Aditya Birla Sun Life Trustee, Aditya Birla Sun Life Arbitrage Fund, Kotak Equity Arbitrage Fund, Hdfc Mutual Fund - Hdfc Mid-Cap Opportunities Fund, Nippon Life India Trustee Ltd-A/C Nippon India Multi Cap Fund, Icici Prudential Value Discovery Fund are among the large MF investors in ZEEL. Also, Hdfc Life Insurance Company and SBI Life Insurance and Life Insurance Company of India are among the large insurance players that hold a substantial stake.
The share price of ZEEL is down more than 40 percent from its 52-week high levels and a large fall came after Sony announced termination of the deal on January 22. Among the many demands of Sony to conclude the deal, one key demand was that ZEEL MD and CEO Punit Goenka step down from his position and the board. However, there is a view within ZEEL that several of Sony's other demands had turned the deal into a virtual takeover deal instead of a merger.
What are MFs seeking from ZEEL board
A sharp fall in the share price of the company is the key cause of concern of the MFs, since it has led to huge value destruction for the shareholders. MFs want to understand from the board and the management as to why ZEEL did not adhere to Sony's demands to conclude the deal. This apart, MFs want to further know the cost implications post the break-up of the deal since Sony had sought $90 million in termination costs from ZEEL. But ZEEL too has filed its application with the National Company Law Tribunal seeking compensation from Sony for terminating the deal.
MFs further want to know ZEEL management and board's strategy to meet the business requirement without a large investor in the company or a merger. On a standalone basis without any big partner, ZEEL will remain India's second largest entertainment company with 18-20 per cent market share. In comparison, the merged entity Reliance Jio and Disney will command anywhere between 33 percent to 35 percent market share. Jio-Disney together are valued at around Rs 70,000 crore while ZEEL at its current share price is valued at Rs 15,500 crore.
In the wake of SEBI allegations against ZEEL promoters and the ongoing investigations, the MFs want to know from the board as to what steps they would be taking to protect the interest of minority shareholders. MFs and large shareholders also want a review of the processes within ZEEL on the back of the ongoing SEBI investigations into the accounting discrepancies, the sources said.
ZEEL's response
Already, ZEEL's board in its meeting held on February 27, had expanded and strengthened the role of the ‘Independent Advisory Committee’ constituted on 23rd February 2024, and renamed it as an ‘Independent Investigation Committee’.
After a detailed consultation with the Audit Committee and seeking inputs from Justice Satish Chandra (Chairman of the Independent Investigation Committee), the Board of ZEEL led by R. Gopalan, approved the Independent Investigation Committee and has advised it to thoroughly review the allegations levelled by regulators and other parties against the Company. Under Gopalan, the Board of ZEEL has also laid down a roadmap for the management to achieve higher EBITDA (Earnings Before Interest, taxes, depreciation, and amortization) and growth for the next two years.
SEBI's next order against ZEEL management and the promoters is expected in April, which is likely to hold them accountable for Rs 750 crores worth of funds mis-match in the balance-sheet. Before that the ZEEL's internal committee report too would be out, which would make things clear, the sources said. In August last year, ZEEL promoter Punit Goenka was reinstated as the MD and CEO of the company after the Securities Appellate Tribunal (SAT) overturned a ban imposed by SEBI for allegedly siphoning off company funds. SAT had noted that Sebi had not yet proven the diversion of funds and found that Goenka had sufficiently explained the situation with genuine documents, thus satisfying his burden.
