byjus: Face-off likely at EGM over plan to oust Byju’s CEO

Investors in edtech firm Byju’s parent Think & Learn Pvt. Ltd who have called today’s extraordinary general meeting (EGM) have raised concerns over the management’s failure to enforce the company’s rights related to the acquisition of Aakash Educational Services Ltd (AESL), besides agreeing to “onerous” and “prejudicial” loan terms with Davidson Kempner (DK), among other matters.

They have demanded the ouster of founder Byju Raveendran and his family from leadership roles in the edtech firm, accused the company of keeping stakeholders in the dark, asked for details regarding investigations by federal agencies and want to know the terms being offered to any new investors.

“We are appalled that the investors have leaked the purported EGM notice to the media, despite being bound by confidentiality obligations under the articles of the company and the shareholders’ agreement,” a Byju’s spokesperson said.

“In any event, we deny all the allegations made by shareholders in the notice. For reasons stated in our petition filed before the Karnataka High Court and, as ordered by the High Court yesterday (Wednesday), if the shareholders are minded to go ahead with the meeting tomorrow, any resolutions passed will be ineffective.”

Byju’s obtained a stay from the high court that prohibits the implementation of any resolutions passed during the EGM until the next hearing. But the court refused to stop the emergency shareholder meeting from going ahead.

The AESL matter pertains to the acquisition of the company in 2021 for $950 million, with around 70% paid in cash and the remaining to be adjusted against Think & Learn equity. The Chaudhry family and Blackstone collectively held a 30% stake in AESL, while Think & Learn owned 43% and Raveendran had 27%.

According to the original agreement, Blackstone was to receive a 0.75–1% stake in Think & Learn, while the Chaudhry family was expected to get a 1.5–2% holding in exchange for their stock in AESL, based on the $11 billion valuation that Byju’s had at the time. This was part of a share swap agreement.

However, Blackstone and the Chaudhry family declined to comply with a March 2023 notice from Think & Learn to execute the share swap as per the original agreement. They cited reasons such as delays in the parent filing the FY22 financial statement, defaulting on its term loan B (TLB) as well as governance issues. This was despite the company’s legal counsel confirming binding obligations for the share swap as per the transaction terms, according to the investors.

Blackstone and JC Chaudhury didn’t respond to queries.

The investors also alleged that Raveendran facilitated AESL’s entry into “onerous” and “prejudicial” loan terms with Davidson Kempner. Raveendran also misled certain shareholders about the existence of Rs 400 crore earmarked for partially repaying the DK loan, according to the EGM notice.

Think & Learn inked a structured credit deal worth Rs 2,000 crore ($250 million) with Davidson Kempner in May last year, leveraging the cash flows of AESL. The Davidson Kempner non-convertible debentures (NCDs) were linked to the TLB loan in such a manner that any default on the latter would trigger a default on the NCDs as well. The company defaulted and DK pulled back the amount that hadn’t been given out (Rs 1,133 crore) from the escrow account.

Investors that have sought the EGM include Chan Zuckerberg Mauritius, General Atlantic Singapore TL Pte Ltd, MIH Edtech Investments BV, Owl Ventures and its affiliates, Peak XV Partners Investments IV, Peak XV Partners Investments V and Sands Capital Global Innovation Fund-Cayman Ltd.

The investors said the management’s failure to complete audits for FY21, FY22, and FY23 within Companies Act deadlines resulted in investigations by the Ministry of Corporate Affairs and the Registrar of Companies as well as TLB covenant defaults.

A recurring complaint in the notice is that the Byju’s management withheld important information from investors, reflecting the divide between the company and some of its key stakeholders.

The notice said that the management had failed to disclose trading financials and material discrepancies between guidance and actual results, along with inaccurate disclosure of available capital, leading to a misrepresentation of short-term capital sufficiency.

The notice contains a section on ‘Management concealing material information from shareholders,’ which raises issues such as the failure to disclose a notice of default from Great Learning, litigation related to Camshaft Capital Fund and “potential departures of key management personnel.”

The investors have also sought information on investigations by the Directorate of Enforcement (ED), the MCA and the Serious Fraud Investigation Office (SFIO).

They also allege that the management repeatedly breached obligations that were listed in the shareholding agreement and articles of association and failed to provide essential financial data, cap tables, M&A transaction details, debt negotiations and other information that had been sought. Additionally, the management consistently failed to invite board observers, despite requests.

The investors have demanded a status report from management at the EGM on issues such as fundraising by the company and AESL and terms being offered to incoming investors. Other details demanded include the financial obligations to DK, FY22 audit account reconciliation, the company’s cash flow and liquidity assessment, and responses to a suit by the Board of Control for Cricket in India (BCCI) over a failed sponsorship deal.

The next steps that the shareholders have proposed are evaluating the status of CEOs and CFOs across entities, establishing interim succession plans, and potentially appointing a third-party temporary CEO for all the entities. They also want the board restructured to improve oversight, cut shareholder value loss, give shareholders’ representation and appoint independent directors.