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Goenka owns 4% in Zee, which was founded by his father Subhash Chandra in 1992. According to rules, any person with or without holding any shares in a listed target company, can make an offer to acquire shares of the entity subject to a minimum offer size of 26%.Also, any shareholder or group of shareholders holding at least 10% in a listed company can move a resolution to change its directors.
Prior to Zee announcing a merger deal with Sony in 2021, the Indian company’s then largest shareholder Invesco had sought a rejig of the board including the ouster of Goenka. Unless Goenka procures funds for Zee’s growth plans, he could face a similar situation with investors teaming up against him.
Though the company has cash on its books and carries hardly any debt, its profits have been plunging on weak industry dynamics. “The fallout of the failed merger will compound problems for Zee and it could see institutional investors voicing their concerns for a change. However, the current management would have been cognizant about this and would have already created a contingency plan to tackle this,” said N V Capital managing partner Vivek Menon.
The largest institutional shareholders in Zee are ICICI Prudential MF (7%), Nippon India MF (6%), HDFC MF (5%) and LIC (5%). In the past, Tata Group’s former chairman late Cyrus Mistry, ICRA’s ex MD Naresh Takkar, Fortis Healthcare’s then director Brian Tempest and Dish TV’s promoter Jawahar Goel (brother of Subhash Chandra) were ousted by shareholders.
Not just pacifying investors, Zee would also have to ward off any takeover attempt. “The Zee-Sony merger would have addressed Zee’s low promoter ownership challenge as post-merger Sony would have owned 51%,” said foreign brokerage CLSA.
According to Prime Database, about 80 companies including Infosys, Suzlon Energy and Max Financial Services, had promoter holdings below 15%, as on September 30, 2023. Some like Larsen & Toubro, Zomato, One97 Communications (Paytm) and Delhivery don’t have any promoters.
“A low promoter holding may expose a company to a hostile takeover risk, if there is a certain ‘block’ of institutional investors who may want an exit. A mandatory 26% open offer by the acquirer may also seem lucrative to retail investors, especially if a low promoter holding is perceived negatively by the market,” said Katalyst Advisors’ executive director Binoy Parikh. “Although an acquirer gaining significant control might bring focused strategic direction, it’s important to consider mandatory Competition Commission approval, especially if the buyer operates in the same business sector.”
India has seen very few unfriendly takeover moves. In 2012, the Goenka family’s Essel Group picked up shares of IVRCL from the open market, reaching a level where its holding surpassed that of the promoters of the infrastructure development company. The founders of IVRCL held 11% in the company at that time. The share-acquisition was seen as a hostile takeover move by Essel. However, Essel later changed its mind from increasing its holding in IVRCL to exiting the entity. In Zee, Essel’s stake fell from 42% in 2019 to 4% as it sold shares to repay loans. Of the 4%, 5% is pledged, BSE data showed. In other words, 0.2% of the total equity of Zee is pledged.
Other companies that saw hostile takeover attempts were L&T (by Reliance Industries and Aditya Birla Group), Shapoorji Pallonji-owned Forbes Gokak, Gesco (now part of Mahindra Lifespace Developers), Tatas-controlled Voltas, Nusli Wadia’s Bombay Dyeing and EIH (Oberoi hotels).
