Proxy Advisory Firm Acknowledges Price Premium Over Benchmark, Despite Initial Concerns
MUMBAI (India CSR): In a significant development for ZEE Entertainment Enterprises Ltd (ZEE), proxy advisory firm Stakeholders Empowerment Services (SES) has changed its earlier recommendation and now advises shareholders to vote in favour of the promoter group’s stake enhancement proposal. This follows a detailed reassessment by SES, as captured in its latest addendum to the original report.
Earlier Concerns Raised by SES
Initially, SES had raised serious concerns over two main aspects of the proposal:
- Warrant Pricing Concerns: SES had objected to the pricing mechanism used for the warrants, highlighting that warrants and equity shares should be priced differently to account for the risk premium and time value.
- Absence of Black Scholes Model: SES also pointed out that the company did not apply the Black Scholes pricing model, which is a globally accepted standard for determining fair warrant prices. This, they argued, resulted in what appeared to be an unduly low premium for the warrants.
Both these concerns, according to SES, were fundamentally linked to the fairness of the deal’s pricing.
Why SES Changed Its Stance
In its revised report, SES explained the reasoning behind its change of heart. The company’s detailed explanations helped address most of SES’s earlier concerns.
Key points include:
- Use of Undisturbed Price as Benchmark: SES now considers the price of Rs. 106—prevalent at the time of the transaction’s announcement—as the correct benchmark to evaluate fairness. Against this, the proposed issue price of Rs. 132 represents a ~24% premium, a reasonable uplift in SES’s view.
- Dynamic Nature of Market Prices: SES acknowledged the fluidity of stock prices. It noted that had the ICDR formula been used strictly, the premium might have appeared lower. But SES emphasized the importance of selecting a specific date for price benchmarking in such market-driven scenarios.
- Investor Confidence and Market Reaction: Post-announcement, ZEE’s stock saw a price surge of about 35%. SES questioned whether the stock would sustain these levels if the resolution was defeated or withdrawn, indicating market optimism around the proposal.
- No Exceptional Promoter Commitment: Interestingly, SES rejected the notion that the promoter group had demonstrated special commitment to ZEE. SES argued that the promoters had no other viable option but to proceed as they did.
ZEE’s Troubled Past Weighs in
SES did not ignore ZEE’s checkered corporate governance history in its assessment. However, it noted that this specific transaction, given the premium over the undisturbed price, reflects a more balanced and transparent approach.
The Final Word from SES
Summing up, SES stated, “While our original concerns regarding pricing methodology and fairness were valid, the company’s explanations and the premium over the undisturbed price warrant a reconsideration. Therefore, we advise shareholders to vote FOR the resolution.”
What This Means for ZEE Shareholders
The revised recommendation is a positive signal for ZEE’s management and could clear the way for the promoter group to increase its stake, potentially stabilizing the company’s ownership structure amid its recent corporate challenges.
With shareholder voting set to conclude soon, the updated stance from SES—a respected voice in India’s proxy advisory space—may influence other institutional and retail shareholders who had been on the fence.
(India CSR)
