Zee Entertainment, the keystone of the Indian entertainment industry, is in the news for all the wrong reasons. On January 22, Sony terminated its planned merger co-operation agreement (MCA) with Zee after two years of parley resulting in Zee's stock nosediving 33% the very next day. Notably, SEBI, the stock market watchdog, has also initiated an inquiry to investigate alleged siphoning of funds from the company by its promoters, founder Subhash Chandra and his son, Punit Goenka, the CEO.

As per the statement issued by ZEE Entertainment Enterprises Ltd (ZEEL), Culver Max Entertainment Pvt Ltd (formerly Sony Pictures Networks India) and Bangla Entertainment Pvt Ltd (BEPL), apart from terminating the MCA with ZEEL, is also seeking a termination fee of $90 million on account of alleged breaches of the terms of MCA by ZEEL.

The press release, among other things, also mentions that Punit Goenka, MD & CEO of ZEEL, was agreeable to step down in the interest of the merger. The proposals that were discussed in this regard included protections for conduct of pending investigations and legal proceedings in the best interest of ZEEL's directors and shareholders.

In plain-speak, Punit Goenka would have stepped down from his current role in lieu of protection against pending investigations. It is likely a new entity would refuse to offer such blanket indemnity to previous management when the investigations are about the alleged misconduct that happened during the leadership of Punit Goenka.

Analysts point out that Punit Goenka and his father, who are calling the shots in ZEEL, hold just 3.99% stake in the company which is even less than what a few 'schemes' of Mutual Funds own in ZEEL.

Even though domestic institutions and foreign institutional investors own 43.59% and 28.19% stake, respectively in ZEEL (see table), they have failed to raise their collective voice to stop the value erosion of the stock. While Punit Goenka is protecting his interests, institutional investors who are the majority shareholders and have fiduciary duty to protect investments of their subscribers have been silent through the entire episode.

An e-mail query by Fortune India to all the mutual funds and insurance companies invested in the company asked for details of actions they have taken to encourage ZEEL to adhere to the terms of MCA so that the merger takes place in the interest of their shareholdings. The queries received no response. While Tata Mutual Fund and Kotak Mahindra Mutual Fund replied stating that they will not be responding to Fortune India's query, the rest have not replied till the time of filing the story. Meanwhile, in response to Fortune India queries, ZEEL officials sent the January 22nd statement.

Chandra Family Dominates Management When Institutions Own Zee

The Zee board currently has five board of directors. Punit Goenka is the managing director and CEO of the company while Subhash Chandra is the chairman emeritus. The family has a dominant say in the company's day-to-day functioning on the back of Punit's chief executive role. The board of Zee Entertainment comprises Punit Goenka, R Gopalan, Venkata Pinisetti, Shishir Babubhai Desai, and Uttam Prakash Agarwal. A statement issued by R Gopalan on Janaury 22 reads, "The Board has complete faith in the highly experienced senior management of the company and will continue to guide the team."

Among domestic investors, 29 mutual funds collectively own 32.49% and insurance companies collectively own 10.66% at the end of December 2023. Interestingly, Life Insurance Corporation (LIC) is the largest owner among insurance companies with 5.12% stake. SBI Life Insurance and HDFC Life Insurance own 2.12% and 1.85%, respectively.

Even some mutual fund schemes own a higher stake in Zee Entertainment. Prominent schemes that hold the largest amount in Zee are ICICI Prudential Value Discovery Fund that owns 7.25%, Nippon India Multi Cap Fund, and HDFC Mid Cap opportunities Fund own 6.12% and 5.26% respectively. There are four more mutual fund schemes that own more than 1% stake in Zee (see table).

As per Capitaline data, at the end of December 2023, six mutual fund houses that hold the highest amount of Zee shares were ICICI Prudential Mutual Fund (₹1,928 crore), Nippon India Mutual Fund (₹1,615 crore), HDFC Mutual Fund (₹1,389 crore), Kotak Mahindra Mutual Fund (₹681 crore), Aditya Birla Sun Life Mutual Fund (₹610 crore) and Tata Mutual Fund (₹547 crore).

ICICI Mutual Fund, Nippon India Mutual Fund and HDFC Mutual Fund, the top three AMCs holding in ZEE Entertainment stood at 0.29%, 0.4% and 0.24% of their AUM respectively. Sundaram Mutual Fund by taking exposure of 0.49% of its AUM was the largest among AMCs. Though, Sundaram exposure in absolute terms was eighth largest with ₹259 crore stake in ZEE.

Among FIIs, Government Pension Fund Global, Amansa Holdings Pvt Ltd and Vanguard International Value Fund are the top three stakeholders in Zee with 2.8%, 2.39% and 2.23% respectively.

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