IiAS and InGovern advise investors to reject Zee CEO Goenka’s candidacy

MUMBAI & BENGALURU: In a surprise move late on Monday, Punit Goenka announced his decision to resign as managing director of Zee Entertainment Enterprises Ltd (ZEEL), just days after the company Shareholders will attend their Annual General Meeting (AGM).

The company released news to the media that he will continue to serve as chief executive officer (CEO). He will also continue to serve as a member of Zee’s board of directors if his appointment is approved at the annual general meeting on November 28.

Goenka attributed his decision to his need to devote time and energy to the role of Zee CEO. The company’s board of directors supported his decision.

“I have made a request to the board to focus on operations as CEO in the long-term interest of the company and all its stakeholders,” Goenka said in the release.

Incidentally, Goenka’s decision to resign comes at a time when two consulting firms are advising investors to reject his reappointment as managing director of the company. The reappointment will be put to a vote at Zee’s annual general meeting on November 28. The company’s board of directors has granted Goenka a new five-year term starting on January 1, 2025, after Goenka’s current five-year term ends on December 31.

Opposition from proxy advisory firms Institutional Investor Advisory Services (IiAS) and InGovern Research Services may allow Goenka to retain top spot at the firm founded by his father Subhash Chandra in 1992 position, it’s an uphill battle. The generation promoter joined Zee’s board of directors in January 2005 and became the CEO in 2008.

ALSO READ | Sebi complains to SAT, Chandra is not cooperating with Zee funds misappropriation investigation

A corporate governance expert said this latest move ensures Goenka’s continuation as Zee CEO even if his claim to become the company’s managing director is rejected by shareholders at the annual general meeting.

Shriram Subramanian, managing director at proxy advisory firm InGovern, said: “After shareholders voted against Mr Puneet Goenka’s continuation as director and managing director, it would have serious implications for the board’s ability to continue as CEO if he were to continue. Influence.”

Why are proxy advisers against Goenka ahead of Zee?

One of the reasons cited by IiAS in a Nov. 16 report was “the company’s inability to complete its $10 billion merger with Sony Group.” “From R Gopalan’s letter received by IiAS in February 2024, we note that the board has delegated the responsibility for the merger to the management. We believe that shareholders must hold Punit Goenka accountable for this,” said an anonymous source. The note was shared by Mint investors. “The failed merger resulted in a significant loss of shareholder wealth creation opportunities.”

ALSO READ | Zee and Sony broke up. Now, streaming studios are sulking

IiAS noted that during Goenka’s five years as CEO, Zee’s profits almost halved – the company’s EBITDA (earnings before interest, taxes, depreciation and amortization) fell from $1,630 crore in FY20 $910 crore in FY24.

InGovern said in its report: “Given the several issues in governance, lack of transparency and various pending litigations, these have raised questions about the overall governance effectiveness of Zee under Mr. Punit Goenka as Managing Director and Chief Executive Officer. Suspect.” Mint.

Queries sent to Zee via email remained unanswered by the time of going to press.

Why Goenka faces a tough task

While Goenka has relinquished his position as managing director, shareholders will decide at the annual general meeting whether he will continue as a director on the company’s board. To be re-elected, Goenka needs more than 50% of shareholder votes. But it may not be an easy task as Zee founder and chairman emeritus Chandra owns only 3.99% of the company and Goenka’s re-election will be decided by public investors, many of whom will consider proxies Consult the company for advice.

To be sure, Chandra’s low shareholding did not pose a problem when Goenka was last reappointed as MD and CEO in September 2020. But this time, the company’s top shareholder lineup has been shuffled.

In 2020, Chandra and his family owned 4.02% of Zee, with foreign investors holding nearly 77%, insurance companies holding 7.26% and mutual funds holding 3.73%. Retail shareholders or investors own less than $Holds 4.26% of the stock worth 200,000 shares.

On November 28, Goenka and Zee’s boards will face a different group of shareholders. Foreign investors’ holdings have shrunk to just 17.53% as of September 30, with retail shareholders now owning a third of the company’s shares (33.35%), while domestic mutual funds’ holdings jumped to four times , reaching 12.39%.

ALSO READ | Mint Explainer: The failure of the Sony-Zee merger and its wider implications

Four years ago, US fund management company Invesco was the largest shareholder, holding nearly 18%, followed by Life Insurance Company (LIC) with 4.89% and Singapore’s Amansa Capital with 3.56%.

Today, LIC is the largest institutional shareholder with a 4.63% stake, followed by investment management company Vanguard with a 4.5% stake, and Norges, the world’s largest sovereign wealth fund, with a 3.96% stake.

Invesco sells 17.88% of its stake $4,492 crore in April 2023. Amansa Capital will also exit in batches from the end of 2023 to early 2024. Many foreign investors, including New York City Trust, Kuwait’s sovereign wealth fund and Dutch asset manager APG Asset Management, have cut back on investments. their shares.

Zee’s trouble

Over the past four years, Zee has faced an investor revolt, the exit of many large foreign investors, a failed merger with Japanese giant Sony to create a $10 billion media giant, lawsuits and investigations by market regulators.

Between September 1, 2020 and November 18, 2024, Zee stock price fell by 47%, while the Sensex or BSE30 index rose by 102%.

However, Goenka managed to weather all these troubles and even got a reprieve from the Securities Appellate Tribunal, which overturned an order issued by the Securities and Exchange Board of India (Sebi) barring him from continuing to serve on Zee’s board.

board backing

To allay investor concerns, Zee listed the steps Goenka has taken since the start of the year in a notice of its annual general meeting published on November 4.

The board praised Goenka for resolving all outstanding cases with Sony without paying a penalty after the two companies failed to complete the merger. The company also highlighted its restructuring plans, noting that EBITDA margin improved to 16% in the July-September quarter from 9.7% in the January-March 2024 quarter.

IiAS, however, seemed unmoved. “Given his failure to deliver on his previously articulated five-year plan, we are concerned about the potential success of the proposed strategic growth plan centered on frugality, optimization and a strong focus on quality,” IiAS said.

ALSO READ | Why Invesco terminated ZEEL’s Punit Goenka business

“We have further concerns over Punit Goenka’s continued appointment as director due to concerns over fund diversion and corporate governance issues, including related party transactions raised by market regulator SEBI in its initial interim order; until the matter is resolved, we remain Concerned about the legal and reputational risks this appointment poses to ZEEL,” IiAS added in its note.

Gaurav Laghate in Mumbai contributed to this story.