Explained: Hostile Takeovers & the NDTV – Adani Deal

On 23 August 2022, Adani Enterprises Limited together with AMG Media Networks Limited (“Adani Group”) through its offer manager, made requisite filings with the Securities and Exchange Board of India (“SEBI”) for an open offer to acquire relevant number of fully paid-up equity shares of New Delhi Television Limited (“NDTV”), representing 26% of the voting share capital from all public shareholders by Vishvapradhan Commercial Private Limited (“VCPL”).

In today’s newsletter, we aim to provide a broad overview of –

• what are Hostile Takeovers?
• what is an open offer?
• the NDTV and Adani deal; and
• why acquisition of NDTV by Adani is considered a hostile takeover.

Takeovers or acquisitions are transactions wherein, a company (being the “Acquirer”) acquires a controlling stake in another company (being the “Target”).

Takeovers, or acquisitions can either be friendly or hostile.

Friendly acquisitions are transactions wherein discussions and negotiations between the Target and the Acquirer company have occurred and, the management of the Target is on board with the transaction and both the parties i.e., the Acquirer and the Target company have mutually agreed to the terms of the acquisition and the same are considered to be beneficial for both parties.

Hostile takeovers, on the other hand, involve a situation where the Target is an unwilling participant, or simply, a shark-bait. Hostile takeovers are mostly achieved by the Acquirer directly approaching the shareholders of the Target by making an open offer to acquire the Target without the agreement of the board of directors of the Target company.

An open offer is an offer made by the acquirer to the shareholders of the target company inviting them to tender their shares in the target company at a particular price. The primary purpose of an open offer is to provide an exit option to the shareholders of the target company on account of the change in control or substantial acquisition of shares, occurring in the target company – which happens in most friendly acquisitions. However, this requirement along with inter alia other SEBI rules and regulations can also be used for a hostile takeover.

If an acquirer has agreed to acquire or acquired control over a target company or shares or voting rights in a target company which would be in excess of the threshold limits (in the NDTV-Adani deal being – acquisition of 25% or more shares or voting rights), then the acquirer is required to make an open offer to shareholders of the target company.

Please note that any person with or without holding any shares in a target company, can make an offer to acquire shares of a listed company subject to minimum offer size of 26%.

It’s a two-stage deal:

Stage 1 – NDTV founders Prannoy and Radhika Roy took INR 403.85 Crores in loans from VCPL, and in exchange issued warrants that allowed the company to acquire a 29.18% stake in the news group. As these said warrants were convertible at any time, Adani Media Networks (AMN) Ltd, (a subsidiary of Adani Enterprises) bought 100% of the equity stakes in Vishvapradhan Commercial Private Limited (VCPL) for Rs 113.74 Crore.

Earlier, VCPL had loaned INR403.85 Crore to RRPR Holding Private Limited (“RRPR”) a promoter group company of NDTV. Against this interest-free loan, RRPR issued warrants to VCPL entitling it to convert them into a 99.9% stake in RRPR, if not paid back.

As per the terms of the agreement, the Roys had to return the loan money to VCPL in 2019, the failure of which has now given full control of RRPR and consequently, the company’s holding in NDTV to VCPL. To recover its loan, VCPL has now sold the collateral it held to Adani Group.

Adani Group’s indirect control of a stake above 25% in VCPL means it must put forward an open offer to purchase at least 26% more from existing shareholders in NDTV to give them an opportunity to exit, according to SEBI regulations, which lead to Stage 2.

Stage 2 – VCPL and Adani Enterprises made an open offer to SEBI to acquire an additional 26% via the open offer from the public shareholders of NDTV.

With the VCPL acquisition, Adani Group indirectly holds a 29.18% stake in NDTV and the founders Prannoy Roy and Radhika Roy, continue to hold 32.26% of NDTV.

If the open offer made by Adani Group is successful and the two-stage plan works, Adani Group would hold 55.18% of NDTV.

As without any discussion, consent or notice with NDTV or its founder-promoters, a notice has been served upon the Roys by VCPL stating that has exercised its right to acquire 99.50 per cent control of RRPR, the promoter-owned company that owns 29.18 per cent of NDTV.