Zee is seeking time on the Sony deal as two directors have voted out

Zee Entertainment Enterprises Ltd has asked Sony Pictures Networks India for more time to complete its $10 billion merger, even as the country's largest listed entertainment company faces increasing investor unrest. The reappointment of two independent directors was rejected, while a third withdrew his candidacy ahead of the annual general meeting last week.

Zee did not provide any details in its announcement to the stock exchanges on Sunday, including why it had taken more time. It is also not clear whether Sony will agree to this request from the Subhash Chandra-founded company.

On Saturday, Zee told stock exchanges that two proposals to reappoint independent directors Vivek Mehra and Sasha Mirchandani were rejected as the proposals did not receive approval from 75% of shareholders, which is required for special resolutions. And the reappointment of Adesh Kumar Gupta, another independent director, proved fruitless after he withdrew his candidature citing personal reasons on December 13, three days before the AGM.

While 52% of shareholders voted against Mehra's reappointment, about 29% voted against Mirchandani's reappointment. This came after investors rejected the reappointment of another independent director, Alicia Yi, a partner at recruitment firm Korn Ferry, in July.

Significantly, the vote result comes as the completion of the Zee-Sony merger is certain to be extended beyond the aforementioned December 21.

The head of a proxy advisory firm said the vote reflected minority investors' nervousness about whether the merger would go through. “Investors are likely to assume that the merger could fail and do not want the current board members to continue betting on Zee as they feel they have failed to complete the merger,” the executive said on condition to remain anonymous.

Zee declined Mint's request for comment.

Some of the largest foreign institutional investors, who together own a third of Zee, voted against the resolutions. In comparison, the promoters only own 3.99% of the company's shares.

The City of New York Group Trust, which owns 1.3% of Zee, voted against Mehra's reappointment, according to documents reviewed by Mint. Legal and General Investment Management (LGIM), the UK's largest fund manager, also voted against Mehra's candidacy. “It is voted against as LGIM expects that a CEO/CFO/FD or a non-executive director does not have too many external roles to ensure that they can carry out their duties effectively,” LGIM reasoned.

Mehra, chartered accountant and former partner and managing director at PricewaterhouseCoopers Pvt. Ltd is a board member of seven listed companies and one listed real estate investment trust.

The California Public Employees' Retirement System (CalPERS), which manages assets worth around $500 billion, also rejected Mehra's candidacy. And APG Asset Management, a Dutch group that manages about $600 billion in assets, voted against reappointing Mehra and Mirchandani.

At least two proxy advisory firms, including Institutional Investor Advisory Services (IiAS) and Stakeholders Empowerment Services, had recommended voting against Mehra's reappointment.

IiAS also recommended that shareholders not grant Mirchandani a second term.

On Mirchandani, IiAS noted that as a member of the nomination and remuneration committee, he is responsible for the jump in Zee managing director and CEO Punit Goenka's remuneration, which rose by 20% 13.2 crore in FY21 to 41.1 crore in FY22, surpassing the 21 per cent growth in the company's profit in the same period. It goes on to say that Goenka Salary at ₹35 crore in FY23 was high and accounted for 2% of profit before exceptional items.

“The entire Zee board will undergo a refresh following the Sony merger and control to Sony. “A whole new set of directors will be appointed,” said Shriram Subramanian, founder and managing director of InGovern Research Services, a Bengaluru-based proxy advisory firm. Subramanian did not see any problems with the reappointment of the two directors.

Dish TV India Ltd, the company owned by Chandra's younger brother Jawahar Goyal, has seen nine directors sacked by investors since Yes Bank sounded the investor revolt horn in September 2021.

This means that in the last 30 months, a dozen director nominations have been rejected by shareholders of Chandra-owned companies. During this time, three independent directors have resigned from Zee's board. In addition to Gupta (last week), Ashok Kurien and Manish Chokhani also resigned in September 2021 a day before the general meeting.

Zee's three-member board, which does not include founder Chandra, has appointed Venakata Ramana Murthy Pinisetti, Uttam Agarwal and Shishir Desai as independent directors for now.

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