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Gautam Adani Knocks on the Doors of NDTV. How Does the Hostile Takeover Play Out? 

The Roys have responded to the billionaire's midnight raid by saying that SEBI approval is required before the acquisition of NDTV's holding company goes through.

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In the end, it was Adani, and not Ambani, that came for NDTV.

Before we proceed with the tortuous story that is the takeover of one of India’s best known TV channels by the Adani group, it will help to break down the current shareholding of the NDTV promoter group.

Currently, senior journalist Prannoy Roy holds 15.94% in NDTV, while Radhika Roy’s stake is 16.32%, taking their total to 32.26%.

RRPR Holdings – abbreviated for Radhika Roy and Pranay Roy – has an additional 29.18% of the total NDTV shareholding. Till very recently, these three put together were the promoters of the beleaguered broadcaster.

What transpired on Tuesday?

On a day, when the Adani group was under fire in the stock markets following a report by a credit research firm CreditSight, which labelled them as “deeply over-leveraged”, the power-to-ports conglomerate abruptly dropped a bomb by issuing a press release declaring that they acquired a little-known company called Vishvapradhan Commercial Private Limited (VCPL).

The acquisition of VCPL clears the way for the Adani group to cement its control over NDTV, a broadcast network known for its editorial independence and critical journalism.

How does VCPL matter in the larger picture?

In order to understand the role that VCPL plays, we need to rewind the clock back to June 2008, when NDTV raised a loan of Rs 540 crore from Indiabulls Financial Services Private Limited. While incurring the loan, the Roys pledged their shareholding in NDTV as security.

Barely four months later in October 2008, the Roys took another loan of Rs 375 crore from ICICI Bank to pay off the earlier loan disbursed by Indiabulls Housing Finance. This loan was doled out at an eye-popping rate of 19% per annum, and the Roys encumbered their entire shareholding in NDTV to secure this loan. They also signed non-disposal undertakings with the bank.

In July 2009, the NDTV promoters, once again, took a loan of Rs 350 crore from VCPL in order to repay the loan taken from ICICI Bank. This loan was disbursed at zero interest rate. Subsequently, VCPL advanced Rs 350 crore to RRPR holdings, which, rightfully, paid off ICICI Bank.

Simultaneously, two call option agreements were executed between RRPR and VCPL, which gave it the right to purchase 1,63,05,404 shares or 26% stake in NDTV at a price of Rs 214.65 per share. VCPL also advanced another loan of Rs 53.85 crore to NDTV promoters.

An important term of the loan agreement was that RRPR was to issue convertible warrants to VCPL which were convertible into equity shares aggregating to 99.99% of the fully diluted equity share capital of RRPR. Intriguingly, this conversion could be carried out at any time during the tenure of the loan or thereafter.

As long as the warrants weren’t exercised, the Roys were able to continue leading their channel without any real threat of a takeover.

There are two other important clauses in the loan agreement that merit the attention of NDTV shareholders and those keenly observing the duel from the sidelines. The loan agreement was tailored in a manner to protect the interests of NDTV promoters. Essentially, one of the clauses states that VCPL and its affiliates cannot purchase shares of NDTV which will increase their holding to more than 26% in NDTV without the consent of the promoters.

Since the news of a hostile takeover broke, NDTV has been reiterating the point that the takeover seems to have been executed without discussion, consent or notice.

“Company would like to make it clear that this exercise of rights by VCPL was executed without any input from, conversation with, or consent of the NDTV founders, who, like NDTV, have been made aware of this exercise of rights only today. As recently as yesterday, NDTV had informed the stock exchanges that there was no change in the shareholding of its founders.” the company has stated in its communication.

Meanwhile, VCPL is a shell company which reportedly has had no assets in the 14 years since its incorporation barring the RRPR warrants it holds. The loan that VCPL disbursed to NDTV made its way through a chain of transactions that trace their route back to Reliance Industries. VCPL’s loan to RRPR came from Shinano Retail private limited, a wholly-owned subsidiary of Reliance.

Eminent Networks private limited, a company owned by Mahendra Nahata, a director in Reliance Jio Infocomm lent Rs 50 crore to VCPL. Meanwhile, Shinano Retail has claimed that it received the Rs 350 crores and Rs 53.85 crores (Rs 403.85 crores) it lent to VCPL.

VCPL’s latest March 2021 MCA filings show that it owes Rs 403.85 crore to Eminent Networks. It is interesting to note that VCPL is a wholly owned subsidiary of Nextwave Televentures, which is also linked to Nahata.

ambani

Mukesh Ambani, chairman and managing director of Reliance Industries. Photo: PTI

Adani group’s move

On Tuesday, AMG Media Network private limited acquired a 100% equity stake in VCPL from Nextwave Televentures Private Limited and Eminent Networks Private Limited, both of them being Nahata-linked companies, for an enterprise value of Rs 113.74 crore.

What happens next?

Recall that when the Roys and RRPR raised a loan of Rs 350 crore and Rs 53.85 crore from VCPL, they had given away convertible warrants to VCPL. The Adani-acquired VCPL is now exercising these convertible warrants.

“As per the terms of the warrants, upon exercise of 19,90,000 warrants, RRPR is obligated to allot 19,90,000 equity shares of RRPR to VCPL within 2 business days from the date of Warrant Exercise Notice, i.e. by August 25, 2022. The shares of RRPR so allotted to VCPL will be kept in escrow in accordance with the provisions of the SAST Regulations. Pursuant to the above, neither AEL nor AMNL will directly acquire any equity shares of NDTV. However, VCPL shall acquire equity shares of NDTV pursuant to the Open Offer, which will be completed in accordance with the provisions of the SAST Regulations.” said Adani Enterprises Limited in a corporate disclosure to the market regulator.

The acquisition of RRPR by VCPL results in an indirect acquisition of voting rights in excess of 25% equity shares of NDTV, which, in turn, triggered an open offer by VCPL for NDTV shares.

Will public shareholders respond to the open offer?

On Wednesday, shares of NDTV hit the upper circuit of 5% to scale new heights and reach a 52-week high of Rs 384.50.

This sharp spike makes it all the more unlikely for shareholders to tender their shares at the open offer price of Rs 294. Proxy advisory firms indicate that the Adani group may have to raise its open offer price above prevailing market rates if it wants to increase its stake in the company.

Raising the open offer price above the market rates is not the only way for the Adani group to strengthen its holding in the broadcaster. The Adani group can still scrounge up a stake of nearly 50% in NDTV, helping it establish firm control over the company’s operations, by striking deals with other bigger and institutional shareholders.

Out of these, there are two investors that have come into the public eye – LTS Investment Fund (9.75%) and Vikasa India EIF I Fund which owns 4.42% stake.

Both funds have their own connections to the Adani Group. For instance, LTS Investment Fund, which is based out of Mauritius, has pumped in Rs 18,916.7 crore in four companies of the Adani group.

Entities like LTS could have bought at lower prices and could potentially tender their 9.75% shares to the open offer at a discount to market price.

There are also four other entities including Drolia Agencies, GRD Securities, Adesh Broking and Confirm Rebuild who together own about 7% stake in NDTV.

As reported by the Indian Express, since September 2020, these four companies with interlinking directors, collectively own 7.11% of NDTV.

As of June 2022, “Drolia Agencies owns 1.48 per cent stake, GRD Securities 2.8 per cent, Adesh Broking 1.5 per cent and Confirm Realbuild 1.33 per cent. LTS Investment Fund which owns 9.75 per cent in NDTV, also owns 1.69 per cent in Adani Enterprises and also in other group companies including Adani Power 1.09%, Adani Transmission 1.63% and Adani Total Gas (1.27%)”

NDTV: In no mood to stand down?

As newer developments come to the fore, it is becoming apparent that the Roys are in no mood to go down without putting up a spirited fight.

As per NDTV’s latest corporate filing before the market regulator, the Roys have claimed that – as per as SEBI order dated November 27, 2020 – they are barred from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner whatsoever for a period of 2 years.

Consequently, they argue, that as long as the SEBI order of November 2020 is in force, the market regulator’s approval is a necessary precursor that should be complied with before VCPL’s warrant conversion takes effect and the Adani-acquired firm, effectively, becomes a 99.5% stakeholder in RRPR.

In the filing before the regulator, it states that RRPR has instructed its bankers to return the sum of Rs.1,99,00,000 deposited by VCPL on August 23, 2022, into its bank account.

If the matter goes to court, it will likely be a protracted legal battle. But what is clear is that with the VCPL shield gone, the Roys will have no choice but to go to the mattresses – against one of India’s most aggressive businessmen.