ZEE-Invesco row: Bombay HC allows Invesco’s appeal in EGM requisition case

The Bombay High Court on Tuesday allowed the appeal by Invesco Developing Markets Fund, the biggest shareholder of Zee Entertainment Enterprises Limited (Zee), against a single-judge order issuing an interim injunction to hold an EGM for the removal of Zee CEO Punit Goenka.
"The appeal is allowed. The single bench order is quashed and set aside. We have held that the requisition notice (sent by Invesco to Zee) is neither illegal nor incapable of being set aside," said the division bench, comprising Justices S J Kathawalla and Milind Jadhav, while setting aside the single bench order in 2021. 

Shareholders have an absolute right to call an EGM, Invesco had argued.

Zee requested for maintaining a status quo. The court asked for the status quo to be kept for a period of three weeks.

The High court did not have sufficient jurisdiction under company law to grant a stay on the EGM requisition. It's the company law tribunal that is empowered to decide on this matter,” maintained Karan Taurani - Senior VP - Research Analyst, at Elara Capital.

Implications 

This will further delay the Zee/Sony merger process, which in turn will negatively impact share price performance over the near term, said Karan Taurani.

“We believe there is a very low likelihood of the Zee/Sony merger being called off as it is beneficial for both entities to consolidate in this dynamic TV/OTT market. The legal proceedings may take some more time for getting a go-ahead for the merger in a worst-case scenario; also, we don’t expect that the deal will go ahead without Mr Punit Goenka as CEO/MD, which is also one of demands/concerns raised by Invesco,” said the analyst. 

Valuations 

“In a low probability situation of the deal not happening, Z will command a target price of INR 300 basis a lower target multiple due to 1) absence of any synergies 2) no change in promoter group. Valuation multiples on PE basis will see a sharp de-rating towards 14x from our current target multiple of 20x for the core broadcasting business. We maintain our BUY rating on the stock with a TP of INR 450; the stock has already corrected by 30-35% since the merger announcement factoring a delay in the overall execution. We await any concrete evidence of the Sony/Zee merger being called off before downgrading the valuation multiples/target price,” said Karan Taurani.