zee entertainment enterprises: ZEE stock jumps 40% after Invesco EGM call

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Mumbai: (ZEE) surged by a record 40% Tuesday after its biggest stakeholder Invesco called for an extraordinary general meeting (EGM) to remove managing director Punit . The stock ended at Rs 261.50 on the BSE as the Street welcomed Invesco’s move amidst expectations of a possible rerating of ZEE shares.

Meanwhile, addressing the 39th Annual General Meeting (AGM) of the company, Goenka said ZEE continues to have a “strong emphasis” on corporate governance and will take “necessary steps, as applicable” in the interest of all shareholders. Invesco has sought an extraordinary general meeting (EGM) to vote on resolutions to remove Goenka as well as that of two other board members – Manish Chokhani and Ashok Kurien.


Items on AGM Agenda

It also proposed the induction of six new independent directors. Chokhani and Kurien quit Monday night, citing personal reasons, despite being up for reappointment at the AGM on Tuesday.

Replying to queries on Invesco’s notice, Goenka said the board has “examined the matter and will take necessary steps”, without elaborating. ZEE has to call an EGM within 45 days of the Invesco notice.

The other AGM agenda items, apart from the reappointments that did not happen, were the adoption of financial statements for the last fiscal; confirmation and declaration of final dividends; the appointment of Sasha Mirchandani and Vivek Mehra as independent directors for three years from December 2020; and approval of remuneration of Rs 3 lakh for the auditors. The results of the vote will be known by September 16, the company said.

The AGM was presided over by ZEE chairman R Gopalan. Apart from Goenka, his father and chairman emeritus Subhash Chandra as well as independent directors Adesh Kumar Gupta, Alicia Yi, Piyush Pandey, Mirchandani and Mehra were present at the meeting. Chokhani and Kurien did not attend.

Invesco Developing Markets Fund and its associate OFI Global China Fund own a combined 17.9% stake in the company.

Investor Rakesh Jhunjhunwala-owned Rare Enterprises picked up 5 million shares, or 0.52% stake, in ZEE at an average price of Rs 220.44 per share on Tuesday, NSE bulk deal data showed. BofA Securities Europe SA bought 4.9 million shares of Zee Entertainment at Rs 236.20 per share. It held 1.03% in the company at the end of the June quarter.

Brokerages Hail Invesco Development

Kotak Institutional Equities upgraded the ZEE stock to ‘buy’ from ‘reduce’ and raised the target price to ₹250 from Rs 200, saying this was likely to end governance concerns besides leading to an improvement in cash generation and a possible change in management.

“We expect the stock to re-rate and the gap between ZEE’s market value and intrinsic value to narrow notwithstanding the evolving situation,” said Kotak. Credit Suisse said the move by the largest shareholder paves the way for more CEO accountability.

“It is a good development for minority investors. Promoter-level concerns may get addressed at the EGM,” said Abneesh Roy, vice president, institutional equities, Edelweiss.

“The (ZEE) stock can easily scale Rs 400 in a year,” said Sanjiv Bhasin, director, IIFL Securities. “The stock has been languishing due to management issues and a change of guard will be a positive development. The business is very good—Zee5 is doing well.”

Gains in ZEE catapulted the Nifty Media index by over 14% on Tuesday. Group company stocks also rose — Zee Learn by 20% while Zee Media Corp. gained 5%.

Some analysts expect the stock to be volatile in the short term but re-rate over the long term.

“The stock will be volatile because there are uncertainties as to what will happen at the EGM, who will be the new CEO or will Punit Goenka continue as CEO,” said Roy of Edelweiss.

In the medium to long term, the stock will further re-rate because there is valuation comfort and no debt, he said.

Macquarie said it is unclear at this stage if the activism is limited to removing the CEO from the board or from the company.

“Abrupt removal of CEO from the day-to-day operations without any contingency plan could impact the operations of the company in the near term,” said Macquarie, which has an ‘outperform’ rating with a target price of ₹250.

Minority Investors Back Goenka at the AGM

Regardless of the market response to Invesco’s move, most of the shareholders who spoke at the AGM praised Goenka, the current management and the board.

“Invesco should talk to the shareholders and tell us why they want to remove Punit. We will never support such a resolution,” said one of the shareholders who spoke in support of Goenka.

Another shareholder said he will support Chandra and his team to “run the company and take it to great heights”.

Two shareholders asked about issues related to corporate governance, related-party transactions and receivables from related parties. Goenka said the board is monitoring recoveries very closely and the management is engaged with other related parties for old dues, if any.

Company insiders and experts feel that Invesco will find it difficult to get the requisite 75% votes to pass the resolution to remove Goenka.

“It will be interesting to see how ZEE promoters deal with the current threat of losing control,” said a senior analyst. “Ideally, they could add more independent directors, sending a strong signal out that the company is not under the family’s control. This will allay any concerns regarding lapse in corporate governance, and Punit might get to keep his position.”

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