MUMBAI -- Subhash Chandra, the gutsy and influential founder of Zee Entertainment Enterprises, India's biggest listed TV media empire, with a market valuation of 300 billion rupees ($4 billion), was once labeled "India's Rupert Murdoch.'' So when he appeared on prime time news early this month in the middle of a corporate battle with Zee's largest shareholder, everyone expected fireworks.
Instead, the viewers of Zee News, a channel owned by Chandra, were appalled to see the 70-year-old patriarch of the Indian entertainment industry break down on live TV, promising to fight off a hostile attack by U.S. fund manager Invesco, which wants to end his family's dominance at the company.
"You are just an 18% shareholder of the company and I advise you not to behave like an owner but behave like a shareholder," Chandra advised Invesco.
As far as the American fund manager is concerned, being a shareholder is synonymous with being an owner, and it is time for Chandra to accept that his much smaller stake in Zee -- his family holds 4% after a series of sales to pay off debts -- means he can no longer act as if he owns the place.
With this profound divergence of views between the protagonists, the battle over Zee is producing more drama than many shows on Chandra's channels. Will Chandra finally lose control of the business he founded? Or will a "white knight" from Japan ride to his rescue? And who is the billionaire waiting in the wings with his own ambition? Investors will want to tune in, since there are more exciting episodes yet to come.
Chandra's cultural impact in India cannot be overstated. He set up Zee in early 1992, soon after the Indian government of Prime Minister P.V. Narasimha Rao opened up the economy. Until then, the Indian TV industry was monopolized by the state-owned Doordarshan, which broadcast highly edited programs cleared by government officials. Chandra invested in fresh content that included singing competitions; family dramas; interviews of top political, sports and film stars; and Hindi movies.
His family soon also owned a satellite broadcaster, a music label and a movie studio, had made a foray into the news business with Zee News and an English-language newspaper. Chandra would often be seen in the company of politicians, Hindi movie stars and cricket legends.
But the Indian media landscape has now been intensely competitive for many years, and Chandra's early lead is a distant memory. Multinationals that have made inroads include Japan's Sony Entertainment, Star TV, which was once owned by Murdoch and is now part of the Disney empire, and Viacom of the U.S., owner of MTV. And in May 2014, billionaire Mukesh Ambani's mighty Reliance Industries entered the Indian entertainment sector with the takeover of TV18 Broadcast.
As rivals came up with wildly-popular game show formats, live sports and family dramas, Zee managed only copycat fare. Its chief executive lamented last year: "Despite this phase, where creativity took a back seat, the company stayed buoyant purely because of your faith and belief in its intrinsic value," Punit Goenka wrote in a July 2020 letter to Zee shareholders. Goenka, who is Chandra's son, has been in the CEO post since 2008 and is now a key player in the drama. Invesco wants him out and is demanding that new, independent directors be installed on the board.
Chandra's grip on Zee began to slip after his nonmedia investments -- businesses in highway construction, solar power and power transmission, among other infrastructure -- started making huge losses. The market valuation of Zee Entertainment, which touched an all-time high of 589 billion rupees in January 2018, also started falling, worrying lenders that had lent it money, with the company's shares as collateral.
In July 2019, needing cash to pay down debts, he sold an 11% stake in Zee to an Invesco fund for 42 billion rupees. In November that year, another Invesco associate fund, OFI Global China, bought additional shares, reducing the founder's stake to 4.9%. Chandra resigned as chairman of Zee at that point.
Tensions between Invesco and Zee burst into the open last month. The U.S. fund manager proposed that six of its nominees to be appointed to the board in place of Chandra loyalists. Days later, the company unveiled a deal which, while ostensibly a takeover of Zee, also contained provisions that would maintain the influence of his family over the business.
A nonbinding merger of Zee with Sony Pictures on September 22nd brings crucial sports broadcasting rights missing from Zee's portfolio of programming, plus a good lineup of comedies and thrillers and a video-on-demand service. Together, Sony and Zee will have a 27% market share in the Indian entertainment industry. As well as injecting $1.6 billion into the merged entity in exchange for a 53% stake, Sony also agreed to transfer 2% of its stake to the Zee founders as "noncompete" fees, keeping the family stake at 4% of the larger group and granting them the option to increase that stake to 20% in the future. Sony agreed to retain Goenka as CEO of the business for five years, although it will have control over the board.
Invesco's chief investment officer of developing markets equities, Justin Leverenz, wrote an open letter to Zee shareholders lashing out against the a deal that "gifts" a 2% equity stake to the founders of Zee in the guise of a noncompete agreement.
''This is dilutive to all other shareholders, which we consider unfair. At the very least, we would expect such largesse to be contingent on the CEO leaving the said position (thus raising the scenario of 'noncompete') or be structured in the form of time-vesting and performance-linked [stock], which we as shareholders welcome as a transparent way to reward performance and leadership," Leverenz said.
A day later, Zee board took everyone by surprise when it disclosed that Invesco had approached Goenka in February with a proposal of its own for a merger deal with a rival company -- subsequently confirmed by Invesco to be Reliance Industries. Apart from owning cable networks and TV stations broadcasting news and entertainment, Reliance entities also make Hindi movies and offers video-on-demand services that compete with the likes of Netflix and Amazon Prime. TV18 Broadcast also owns a 51% stake in Viacom18, a joint venture with Viacom to make entertainment programs.
Zee said Invesco was pushing a deal that was not in the best interests of all shareholders and asked regulators to examine the situation. Without naming Reliance, Zee said the "strategic investor" had inflated the valuation of its own business when crafting the proposed merger and, if accepted, the terms would have led to a loss of 100 billion rupees for Zee shareholders.
Invesco shot back with a different version of events. The potential transaction was proposed by Reliance and negotiated between Reliance and the Goenka family, it said. "The role of Invesco, as Zee's single largest shareholder, was to help facilitate that potential transaction and nothing more."
With the cat out of the bag, Reliance added its own detail, saying talks broke down over the founding family's insistence on preferential terms.
"Differences arose between Goenka and Invesco with respect to a requirement of the founding family for increasing their stake by subscribing to preferential warrants. The investors seemed to be of the view that the founders could always increase their stake through market purchases," Reliance said, while dissociating itself from the public fight between the two.
Reliance added that the valuations of Zee and its properties were arrived at based on the same parameters and, crucially for investors in Zee, said it is not planning any hostile takeover bid.
Investors will have to wait for the outcome of Sony's due diligence, approvals from regulators for the merger, and the result of litigation initiated by both Zee and Invesco before the fate of the merger and the future for Zee and its founder become clear.
While training his guns toward Invesco, Chandra recalled an incident from 1994, when a global media baron had offered him $500 million for the company and he told him then that India is not for sale.
"It is the same situation today, and Invesco must realize that it is a shareholder and not an owner," Chandra said. ''If you fight with us, we will fight back."