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With no ‘White Knight’ in shining armor in sight, the Roys seem to be stuck in a pickle following the events that have unfolded in the past couple of weeks. On a fateful Tuesday, the Adani group announced that it had acquired VCPL from its owners, turning it into a fully-owned subsidiary of Adani-owned AMG Media Networks Ltd.
Past and the Present- The Factual Scenario
In order to understand how the present situation pans out, let us rewind to the year 2008, when the Roys, as the promoters of NDTV, raised a loan of Rs 540 crores from Indiabulls Financial Services Private Limited, pledging their shares in NDTV as the security. Interestingly, just a few months later, in October 2008, the Roys took another loan of Rs 375 crores from the ICICI bank in order to pay the previous loan. The sum was loaned at an eye-watering interest rate of 19% per annum. Additionally, the two promoters also signed non-disposal undertakings with the bank.
Subsequently, in July 2009, they took a loan of Rs 350 crore from Vishwapradhan Commercial Private Limited (VCPL) at zero percent interest, thereby rightfully paying off the debt owed to ICICI Bank. Simultaneously, two ‘call-option’ agreements were executed between VCPL and Radhika Roy and Pranoy Roy Holdings (RRPR), giving VCPL the right to purchase 1,63,05,404 shares or 26% stake in NDTV at a price of Rs 214.65 per share. VCPL further extended a loan of Rs 53.85 crores to the NDTV promoters. Currently, the Roys hold a total of 32.26% of the Shares in NDTV, in addition to an additional 29.18%, by virtue of their ownership of RRPR.
The sum that was loaned by VCPL, a shell company that has had no warrants since its incorporation, except for the stakes it holds in RRPR, was given through Shinano Retail, a wholly owned subsidiary of Reliance Industrial Investments and Holdings Limited (RIHL). On August 23rd, 2022, Adani Enterprises announced that it had bought VCPL for Rs 113.74 crores, acquiring 100% of its equity stake, thus converting it into a wholly-owned subsidiary of the Adani owned AMG Media Networks Limited. Having acquired VCPL, Adani is now exercising his rights over the convertible warrants that had been given away to VCPL by RRPR, that, when converted into equity shares, amount to 99.99% of the fully diluted equity share capital of RRPR. As per the terms of the said warrants, RRPR is obligated to allot 19,90,000 equity shares to VCPL within two days of the service of the ‘Warrant Exercise Notice’. Thus, Adani Enterprises, by virtue of its ownership of VCPL, shall acquire equity shares in NDTV, pursuant to the provisions of the Substantial Acquisition of Shares and Takeovers (SAST) Regulations. Following the exercise of the rights, AMNL also made an open offer to purchase a further 26% stake in the television network. In a statement issued on August 23rd, NDTV said that the acquisition had taken place without the input, discussion, or approval of NDTV promoters Prannoy Roy and Radhika Roy.
Understanding Hostile Bids
Taking us to the subject of Hostile Takeovers is the claim by the media outlet that its 29.18% stake was acquired without “discussion, consent or notice”. Briefly, when an acquirer company does not offer the target company the proposal to acquire its undertaking but silently and unilaterally peruses efforts to gain control against the wishes of existing management, such acts of acquirer are known as ‘takeover raids’ or hostile ‘ takeover bids’. The element of mutual understanding between the acquirer and taken-over company is the main distinction existing between a friendly and a hostile takeover.
Various classic examples of such takeovers exist in Indian Corporate history. One of the few noteworthy instances would be the ultimate acquisition of Raasi Cements by India Cements in 1998 when BV Raju sold his 32% stake in Raasi Cements to India Cements known as the takeover battle of the 90’s. Further, after this, the second successful takeover would be the L&T and Mindtree acquisition. Larsen had acquired 20.4% stakes in Mindtree from the tycoon VG Siddhartha and affiliate firms and then purchased the additional shares by the medium of an open offer through a hostile bid.
Here is where we can draw delicate lines of similarity relating this to Adani’s actions with respect to the matter at hand. It is important to understand that open offer is just another fancy term to describe what basically is a takeover offer to the existing shareholders of the target company to sell their shares at a discounted price generally. The offer size should at least be 26% shares in the company. An open offer is triggered when an acquirer wishes to purchase a specific number of shares in a target company computed in tandem with the shares or voting rights the acquirer already holds combined with PAC (Persons Acting in Concert) that permits them to exercise a voting right of 25% or more in such company.
This sudden move from Adani Enterprises can be seen as a bid by the group to step into the much-coveted media investment sector, as a part of its ambitious expansion plan. The corporate giant stated that the acquisition would be a significant milestone in its journey to pave the way for a new-age media, across platforms. NDTV, by virtue of the position that it holds in the media industry, would have been a suitable digital and broadcast platform to secure their entry. However, all things considered the question as to in what direction Adani Enterprises can actually move from here, still remains. In order to further probe this swamp of uncertainties, we need to look at two most plausible scenarios that emerge.
The Road-Less Travelled- How a prohibition from dealing in the Securities Market Could come to the Roys’ rescue
It becomes pertinent to note that the main defense that the founder-promoters are resorting to is the fact that they have been barred by Securities and Exchange Board of India from engaging in transactions that involve shares or include securities in any form. It was claimed in the official statement by NDTV that the Roys have been “restrained from accessing the securities market, and prohibited 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, which expires on November 26, 2022”. Hiding behind this order, it was further stated that unless and until SEBI provides its approval, the acquirer cannot actually secure 99.5% interests as that leads to acquisition of voting rights. This argument however, is no more than a veil of a fig leaf and would further lead to a protracted legal battle since there is no demand of transfer of shares, AMG media just claimed the delivery of RRPR Holding shares.
The Hallowed Devil- Open offers in the current context
NDTV’s shares, after the announcement, reached a 52-week high, hitting the upper circuit of 5%. In this case, it is logical for the existing shareholders to not tender their shares at the open offer price of Rs 294. Therefore, as a recourse, Adani Enterprises might have to enter into some alternative arrangement with institutional shareholders.
Open offers exist to provide a possible exit to the public shareholders, in case of major changes in the share-holding patterns of a company. It seems only fair to allow the shareholders, who might have invested in a company by virtue of its share-holding patterns or its promoters, to withdraw their investments in case of substantial changes.
The present open offer for an additional 26% shares has been made under Regulation 3(1) of SEBI (SAST) Regulations, 2011, which provides that whenever an acquirer intends to purchase shares or voting rights that, when combined with his current shareholding, would bestow upon him the ability to exercise 25% or more of the target company’s voting rights, then the prospective buyer must publicly announce his intention to purchase at least an additional 26% of the target company’s (in this case NDTV) voting rights from the shareholders through an open offer.
As of now, the open offer comes at a time when the Adani Group’s debt-fuelled expansion has become a matter of concern for analysts. Even though the corporate giant has had a history of churning out stable businesses, for now, relying upon the Supreme Court’s decision in Securities and Exchange Board v. Akshaya Enterprises, it seems safe to say that the corporate body should not be allowed to withdraw the open offer, made through a public announcement, even if it becomes economically unreasonable.
Conclusion
Here, it becomes important to understand that the SEBI takeover regulations really makes room for open offers and in no way prevents a hostile takeover. The current version of the code allows for creeping acquisition limits, which in turn establishes a mechanism for hostile takeovers to be carried out while protecting the interests of shareholders. Now, it would be very interesting to see how the current situation pans out in regard to all the facets because this would have major implications for the Mergers, acquisitions and takeover arena in general.
