Inside the battle to control ZEE Entertainment

As the high decibel drama in the boardroom of homegrown entertainment company, ZEE Entertainment, unfolds, the only question in everyone's mind is whether MD and CEO, Punit Goenka would be able to safeguard his position. Friends and foes of Founder, Subhash Chandra, say he will not give up easily. Last time, despite having to dilute 36% of the family's 40% stake to settle his Rs 11,000 crore debt, Chandra ensured that his elder son, Punit continued to be at the forefront of the business. Will he be successful this time round? Unlikely, say industry observers, but Chandra is certainly leaving no stone unturned. "Parleys are on to negotiate a truce for Punit to stay on for at least a year. Chandra will never accept defeat," says a former Zee employee.

On the night of September 13, two of ZEE’s long-serving non-executive board members, Ashok Kurien and Manish Chokhani, resigned following murmurs of them being involved in insider trading. The very next day, the company’s largest stakeholder, US-based hedge fund, Invesco Developing Market Funds (which owns a 18.44% stake), called for an EGM to oust Punit. The company has frequently been in the news on charges of tax evasion, siphoning off funds to various promoter entities and other corporate governance issues which has not augured well with the institutional investors.

In fact, when report of Punit’s imminent ouster came out in the open, ZEE Entertainment’s stagnant stock prices spiraled by over 40%. The investor community which had lost faith in the promoters, post the 2019 debt debacle (the company’s stock prices had more than halved) was elated at the prospect of a new ZEE under the leadership of a professional management.

However, Chandra is trying his best to ensure that he doesn't lose complete control of the empire he built. On September 16, the ZEEL board issued a statement condemning the allegations made by proxy advisory firms against former non-executive directors, Kurien and Chokhani. “It is evident that Chandra is trying his best to turn the tide in his favour,” says a senior media industry professional. Despite being Chairman Emeritus for the past year-and-a-half, the media industry professional claims that Chandra had a say in all the board decisions. “He held frequent review meetings with the ZEE team and everyone even today addresses him as Chairman. He even brought his younger son, Amit, back into the business. Even now, Chandra is finding ways.” A section of the industry wonders how investors such as Invesco allowed Chandra to call the shots after he had resigned as Chairman. The most glaring governance lapse, claims a senior industry professional, was the disproportionately high increase in Punit’s remuneration last year. “Punit was given an increment when the business wasn’t performing and the EBITDA had hit rock bottom. They got an executive search firm to build a case for Punit’s increment. Ironically, a senior employee of the same search firm, who was heading the board’s NRC (nomination remuneration and compensation committee) approved it.”

However, the industry at large believes that he has no role in the governance mess. “Punit is in this situation because of his father. He doesn’t even have a role in this. A great team player, he has been trying his best to bring Zee out of the mess it is in,” adds the industry professional. On the business front, the company’s stock was at an all-time low when the market was at an all-time high. This dichotomy became difficult to explain and Invesco, which had a new leadership decided to sever ties with Zee. “To find a buyer, Invesco needed to first sort out the governance issues and put in place a professional management,” says the media industry professional.

While there may be an outside chance of Punit being able to safeguard his position on the ZEE Entertainment board, his exit as MD of the company is imminent. So, who will head ZEE Entertainment? There is speculation galore. Bulk of the media industry rules out the possibility of anyone from the second rung of ZEE’s leadership being elevated to the role of CEO. The unanimous opinion is that the person would be an industry outsider. “The role of ZEE CEO is going to be the most challenging and the board has to pay an astronomically high salary to the potential candidate. The person has to first clean up the governance mess and then turn around the company. That’s going to be a herculean task,” says the former CEO of a leading media company. Invesco, apparently, has already hired an executive search firm to hunt for a CEO.

Sorting out governance issues would be key to finding a strategic investor. However, even if the governance issues are sorted, a large section of the industry believes that getting a strategic investor to buy ZEE will not be easy. “Disney has already invested in Star, AT&T Warner Bros is not interested in the TV business in India and I am not sure if Sony Pictures Network has the appetite to expand in India any further,” points out the former CEO of the media company. When ZEE promoters were looking out for strategic investors in 2019, they were known to be in advanced discussions with Sony Pictures Network and Comcast and the reason both the deals fell through were due to governance issues. “A company like Comcast which has no experience of doing business in India, will obviously be wary of investing in a company ridden with governance issues,” the former CEO further adds.

Apart from governance, ZEE’s lackluster performance in its digital business could also play against it. “A strategic investor would want to invest in a media company for its digital assets and ZEE’s digital assets are a non-starter,” says an industry veteran. There is a new angle unfolding in the ZEE drama every day. Will the ZEE promoters opt for an amicable exit or will there be a slugfest? Let’s wait and watch.