Byju's Has A New Board Now: Is It End of the Road for Raveendran?

In a significant development, a group of shareholders have called for an Extraordinary General Meeting to overhaul remove Raveendran Byju from the post of group Chief Executive Officer amidst financial concerns and troubles grappling in the edtech giant. 

Call for Leadership Change

Out of the seven agendas listed in the EGM notice for shareholders to vote on, the key among them are removal of Byju Raveendran as the managing director and CEO of the company and both Divya Gokulnath and Riju Raveendran from their respective management roles and as directors.

The coalition of shareholders, includes major investors such as Prosus, General Atlantic, Peak XV, Sofina, Chan Zuckerberg Initiative, Owl Ventures, and Sand Capital Management. The EGM is set for Friday, February 23, to address mounting concerns about the management of educational technology company Byju’s.

The shareholders, collectively representing over 30% of the company's shares, have raised alarming questions about financial mismanagement and a lack of transparency within Byju’s, leading to the proposal to remove the founder from his post.

Proposed Interim Leadership and Board Restructuring

The EGM notice further suggests appointing an interim CEO in place of Byju Raveendran while engaging a search firm to identify a new CEO. Additionally, it proposes a restructuring of the board, expanding it to nine members, including one founder, two executives from within the group companies, three shareholders, and three independent directors.

This new Board of Directors is anticipated to be appointed in a subsequent meeting within thirty days from the EGM.

Forensic Investigation and Accountability Demands

Among the significant proposals, the shareholders advocate for a forensic expert from reputable firms to investigate various actions, including acquisitions, alleged breaches, regulatory affairs, tax filings, and any payments made by the company.

Concerns raised by the shareholders encompass financial mismanagement, erosion of shareholder value, breaches of legal obligations, and concealment of information. The shareholders demand explanations for issues such as Term Loan B (TLB) disputes, the Enforcement Directorate's notice in November 2023, and the insolvency petition filed by the Board of Control for Cricket in India (BCCI).

Transparency and Governance Enhancements

The coalition also seeks updates on matters such as fund-raising activities, ED investigations, legal opinions on inquiries by regulatory bodies, and steps to enhance corporate governance. They stress the importance of addressing concerns related to shareholder meetings, financial statements, and corporate governance.

Future Steps Proposed by Shareholders

As part of their proposed next steps, the shareholders advocate for the appointment of CEOs and CFOs for each entity and group, interim succession plans, reconfiguration of the Board of Directors, and the appointment of a chief compliance officer and a senior regulatory affairs official.

The EGM on February 23 is poised to be a pivotal moment for Byju’s, with shareholders seeking substantial changes to the company's leadership and governance structure amid growing apprehensions about financial practices and transparency.

Saving The Sinking Ship

Meanwhile, in a strategic move ahead of the highly anticipated Extraordinary General Meeting (EGM), Byju's, recently successfully subscribed to a USD 200 million rights issue. 

The rights issue, announced earlier this month, has been fully subscribed, as confirmed by Raveendran in a letter addressed to the shareholders on Wednesday. Despite the valuation cut of 99 percent, reducing the company's worth to USD 22 million, the rights issue is expected to provide the necessary capital to address immediate liquidity concerns and pave the way for sustained growth.

“My benchmark of success is the participation of all shareholders in the rights issue," emphasized Raveendran. He acknowledged that while participating in the rights issue may appear to be a difficult choice, it is the most viable option to prevent permanent value erosion.

Board Restructuring and Transparency Measures

In an effort to address concerns raised by shareholders and ensure greater transparency, Byju's has proposed a restructuring of the board. Raveendran, in his letter, committed to inducting two non-executive directors into the board after the FY23 Audit, expected to conclude by the end of the current quarter. This move is aimed at enhancing shareholder representation and fostering increased engagement.

Byju's even has the plans to appoint a third-party agency to monitor the utilization of funds raised through the rights issue. This agency will submit quarterly reports to all shareholders within 45 days from the end of each quarter, accompanied by commentary from the board.

Justifying Low Valuation

Raveendran defended the low valuation, stating, “The ownership of the company does not change pre and post a rights issue, so the question of valuation itself is irrelevant as value preservation is maintained.” He personally invested approximately USD 45 million in the rights issue, underlining his confidence in the company's resilience and the strength of its business model.

Despite being the largest shareholder, Raveendran clarified that the shareholder agreement does not grant certain shareholders the right to vote on CEO or management changes. This statement was in response to the group of shareholders seeking an EGM for his removal, asserting that they lack the voting rights to enforce such a change.

Financial Challenges and Deloitte Resignation

Byju's has been grappling with financial challenges, as highlighted by the resignation of Deloitte Haskins & Sells, the company's auditors. Deloitte cited difficulties in finalizing audit reports for the financial years ending March 2021 and March 2022, raising concerns about the company's financial stability. Byju's, which reported a loss of over Rs 4,500 crore in FY2021, resorted to cost-cutting measures, including laying off around 5,000 employees.

The company is optimistic that the rights issue funding and board restructuring will pave the way for a turnaround. Raveendran acknowledged the difficult choices faced by shareholders but emphasized that participating in the rights issue is the only viable option to prevent permanent value erosion.

By successfully subscribing to the rights issue and implementing transparency measures, Byju's wants to save loosing the edtech and overcoming the current storm.

It is for the Friday's meeting to tell whether Byju Raveendran will be given another chance by the board to serve as the CEO or new leadership will take charge.

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