Punit Goenka, MD & CEO of Zee Entertainment Enterprises (ZEE) on Tuesday disclosed to the company board that Invesco – the largest shareholder of the company, which is seeking his removal from the board – had approached him in February with a proposed merger with “a large Indian group”.

Without naming the group, Goenka informed the board Tuesday that two representatives of Invesco – Aroon Balani and Bhavtosh Vajpayee – presented a merger deal to him involving ZEE and “certain entities” owned by the large Indian group (strategic group) on February 23, 2021.

As per the deal, the shares of ZEE were valued at Rs 220 per share, with total valuation of the company’s public shareholding at Rs 21,129 crore.

The value of entities owned by the strategic group was considered at Rs 17,500 crore.

Further, the strategic group was to infuse approximately Rs 14,000 crore of cash into the merged entity, pursuant to which the shareholding of the group would increase to around 60%, as per Goenka.

While the strategic group would have held a majority stake in the merged entity, Goenka was offered the position of MD & CEO, while continuing to hold a 3.99% stake.

Furthermore, Goenka would have been given employee stock options (ESOPs) representing up to 4% of the shareholding of the merged entity and accordingly, the existing promoter group of the company would hold up to 7-8% in the merged entity, as per the document uploaded on bourses.

However, Goenka said he rejected the deal after expressing his “apprehension” to Invesco that the merging entities of the strategic group were over-valued and it would have resulted in a loss to the Zee stakeholders.

Goenka believed that the valuation attributed to the entities belonging to the strategic group could have been inflated by at least Rs 10,000 crore.

“This would mean that if the proposed deal would have been approved, the shareholders of ZEE would have suffered a loss of at least Rs 10,000 crore,” Goenka said. “When I conveyed the reasons to Balani and Vajpayee, I was told that the deal would be consummated with or without me even though they believed that I was best suited to lead the merged company.”

ZEE has pointed out that Invesco told Goenka that the valuations of the entities belonging to the strategic group had been unilaterally “agreed” by Invesco, and that there was no room for further negotiations on the commercial terms of the deal and no data would be forthcoming to diligence and verify the valuation being attributed to the entities belonging to the strategic group.

“The terms of the proposed merger required Goenka to continue as MD & CEO of the merged entity… Through several correspondences, Invesco acknowledged Goenka’s reputation, experience and capability as a professional and insisted that he would be paramount in leading the operations and business of the merged entity,” the statement said.

The board has taken on record that when Goenka expressed “governance concerns” in relation to the deal – especially surrounding the valuation gaps in the merging entities of the strategic group – he was informed by Invesco that the deal would be consummated “with or without him”, even though Invesco believed that he was best suited to lead the merged entity and his “absence would erode” shareholder value.

The board also said that Invesco time and again reminded Goenka that if he were to refuse to progress the deal, he and his family would lose out.

The disclosure came a day after Invesco wrote an open letter to ZEE’s shareholders, wherein Justin M Leverenz, Chief Investment Officer of Invesco Developing Markets Equities, on behalf of Invesco, stated that they will “firmly oppose” any strategic deal structure that “unfairly rewards” select shareholders, such as the promoter family, at the expense of ordinary shareholders.

The ZEE board has pointed out that Invesco’s open letter stance runs contrary to the very deal Invesco was proposing itself a few months ago.

“Accordingly, public securities markets have been misinformed by Invesco,” the Board said. “Demonstrating their continued faith in Goenka’s leadership and the Board’s handling of the various governance related matters, Invesco voted in favour of the re-appointment of Goenka as the MD & CEO of the Company, as recently as September 2020.”

The ZEE board has also taken note of the open letter and said it will separately respond to certain “unjustified comments” made in the letter.

“The board is constrained to conclude that Invesco’s actions over the past few weeks, have been motivated by circumstances that are extraneous to the Company’s business or performance, or issues of corporate governance or public interest,” ZEE said.