You just can't oust us, Byju's tells investors

On 1 February, top investors holding a combined 30% stake in Byju’s parent Think & Lear Pvt. Ltd called for an extraordinary general meeting (EGM) to change the leadership, reconstitute the board, and address financial management and governance issues. The investors’ action came after Byju’s approached existing investors to raise $200 million at a valuation that would have wiped out those who refused.

“Under these unfortunate circumstances, we would emphasize that the shareholders’ agreement does not give them the right to vote on CEO or management change. The criticality of the rights issue has been shared with all shareholders, with capital being pivotal for a successful turnaround. Unfortunately, the company and our employees are paying the price for a stand-off triggered by some investors. Business continuity is essential, and we shall prioritize this in our actions," Byju’s said in a statement.

Byju’s, which has raised over $5 billion from equity investors so far, has been operating without investor representation on its board, after three investors stepped down last June citing lapses in corporate governance. Since then, the company which has not been able to raise external capital has lurched from one crisis to another.

The SHA “does not even allow investors the right to make management appointments, leave alone CEO," a person close to Byju’s said, adding, “This will get tested, should it go to court."

The case could test both Indian Companies Act, 2013 as well as Indian contract law.

“Notwithstanding the clauses in the SHA, the Companies Act provides a statutory right to any shareholder group holding more than 10% stake in a company to call for an EGM; or take steps to remove a director; or initiate proceedings of oppression and mismanagement. Any provision of the SHA which is inconsistent with the Companies Act will most likely not be upheld by the courts," said Yashojit Mitra, partner at Economic Laws Practice, a homegrown law firm. Mitra clarified that he had not read the Byju’s’ shareholders’ agreement.

In an internal email, Byju’s founders said the rights issue was fully subscribed. “In three short days since we launched our rights issue, we have already received commitments for more than 100% of the proposed amount," the founders said.

Given the dirt-cheap valuation, Prosus Ventures, which invested over $500 million for over 9% stake could end up with 0.09% stake in Byju’s if it skips the rights issue. Other large investors such as General Atlantic and Peak XV also would get wiped out, despite having previously invested significant amounts.

An investor consortium said on Thursday that it had moved to change Byju’s leadership twice in the past in July 2023 and December 2023, but had been disregarded.

A Byju’s investor said that while investors don’t have confidence in Raveendran, edtech is still a viable sector.

“Some of the decisions he (Raveendran) has taken without consulting the investors and they have proved to be very costly," the person said alluding to the $1.2 billion Term loan B and the senior debt raised from Davidson Kempner on very onerous terms. “When Aakash (acquisition) was signed, it was supposed to be owned fully by Think & Learn, but we are now looking at a possibility of owning only 26%," the person said, adding that the value destruction had been immense.

The internal email said Byju’s had been functioning without external capital over the last year. It said Raveendran had been the “sole means for influx of capital over the last few months" and said that the investor action was “distracting" and would “derail" their efforts to turn the company around.

Byju’s’ founders also claimed in a note to employees that although the rights issue has been fully subscribed, January salaries would be “slightly delayed" because of investor action.

“There is a slight delay in salary disbursements this month because of the artificially induced crisis by these select investors," the note said. Salaries will be paid out in phases by Monday, it said.

Meanwhile, overseas lenders entered Byju’s Alpha that received the $1.2 billion loan into insolvency at a Delaware court. Byju’s Alpha is a subsidiary unit of Think & Learn, but was recently drained of all money by Byju’s in what the company said was an attempt to protect itself against activist lenders.

Byju’s has been battling multiple issues, including being at loggerheads with its Term Loan B bond holders, who have sued the company citing technical default and accelerated the repayment of the loan. The company has been trying to negotiate with the bondholders and at the same time also raise money by selling some key assets such as US-based Epic and Singapore-headquartered Great Learning. In addition to the case in Delaware, bond holders have filed an insolvency petition against Byju’s in Benguluru, which will be taken up on 7 February.