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Why Is Zee Stuck In A Legal Battle With Its Foreign Investor Ahead Of Sony Merger: Explained

Zee Entertainment is locked in a legal battle with one of its biggest foreign investors, Invesco, after it called for ouster of the TV network’s CEO citing concerns around corporate governance.

Zee has said it has tightened its governance processes. But the dispute comes at an fraught time for one of India’s biggest news and entertainment TV groups as it recently started merger talks with the local unit of Japan’s Sony Group Corp.

Here is what the Invesco-Zee dispute is all about:

What Are Invesco’s Demands?

Invesco’s legal filings reviewed by Reuters – which are not public – show it wants changes at Zee in light of corporate governance and financial irregularities that have plagued the company, and have even been flagged by India’s market regulator.

Invesco’s Developing Markets Fund and its OFI Global China Fund LLC own a near 18% stake in Zee. They have suggested six new independent board members to be appointed and remove Zee’s current CEO, Punit Goenka.

Invesco asked Zee on Sept. 11 to call an “extraordinary general meeting” of shareholders to consider its demands.

How Does Zee View Invesco’s Demands?

Zee on Oct. 1 rejected Invesco’s request to revamp the board, saying that the move had legal infirmities.

Invesco then took the battle to India’s companies tribunal, where it is trying to force Zee to call the meeting, saying Zee’s behaviour is “oppressive”. Zee has two weeks to respond, as per a tribunal order on Friday.

The TV giant says that it has implemented corrective plans to address concerns raised by the market regulator and that it follows “highest standards of governance”.

It remains unclear which way the shareholders will vote if a meeting is called, but Zee’s founder Subhash Chandra, father of CEO Goenka, has accused Invesco of plotting a hostile takeover.

“They want to take over the company against Indian laws,” Chandra has said. Invesco hasn’t commented on the allegation.

Is The Zee-Sony Deal At Risk?

While Invesco was pushing for a Zee shareholder meeting, the TV giant announced its merger talks with Sony. The deal terms say Goenka plans to continue to be the CEO of the merged entity, which will be majority owned by Sony.

Invesco has in Indian tribunal hearings said it’s not against the Zee-Sony plan, but its filing does criticize how the two entered into talks.

The Sony deal would allow Chandra’s family to raise their shareholding to up to 20%, from 4% now, Invesco said, adding that it was “plainly an attempt to distract the general public” and stall the convening of a shareholder meet.

Zee Prime-Time Appeal, Bollywood Support

In an unusual public diatribe, Chandra made a prime-time TV appearance on Zee’s Hindi news channel this week.

“I urge Invesco to behave like a shareholder not like the owner … You want a fight, then I will fight back,” Chandra said, teary-eyed as he spoke about Zee’s journey in India.

Zee, which has for years offered dozens of entertainment channels and shows in many local languages in India, is a household name. It is now finding support from Bollywood.

“Zee which was first Indian channel promoted by Indian nationalist … (is) now hounded by American and Chinese investors. Pray Zee Entertainment remains in original Indian entrepreneur’s passionate hands,” film producer Boney Kapoor said on Twitter.

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