M&A Series | Explained: Hostile Takeovers

In our last newsletter we had explained in a Q&A format; the different types of acquisitions in the M&A deal space starting with the PayU Billdesk deal as an example.

In our previous posts/newsletters we have also covered the NDTV Adani deal

We have received queries on all our previous posts published on LinkedIn, as referenced above.

In today’s newsletter, we aim to explain in a Q&A format; the different types of acquisitions in the M&A Indian and global deal space starting with the

• NDTV Adani deal; and
• Twitter – Elon Musk deal

as examples.

Answer – In any takeover or acquisition, when a company (generally referred to as “Acquirer”) acquiring a controlling stake in the in another company (generally referred to as “Target Company”), such a transaction can be considered to be a takeover or acquisition that can be either friendly or hostile depending on the method used by the Acquirer to acquire a controlling stake in the Target Company.

Answer – We have to understand that in a hostile takeover, the target company is always an unwilling participant that is being taken over forcefully by the acquirer.

Hostile takeovers are mostly achieved by the acquirer directly approaching the shareholders of the target company by making an open offer to acquire the target company, without the agreement of the board of directors of the target company.

In the NDTV-Adani deal, as without any discussion, consent or notice with NDTV or its founder-promoters, an open offer (being one of the basic requirements of hostile takeover) was made by AMG Media Networks Limited (Adani Group) and notice was served upon the NDTV founders Prannoy and Radhika Roy (being the unwilling participants) by Vishvapradhan Commercial Private Limited (VCPL) stating that it has exercised its right to acquire 99.50 per cent control of RRPR Holding Private Limited, the promoter-owned company that owns 29.18 per cent of NDTV.

Answer – In the Twitter- Elon Musk deal, an unsolicited and non-binding offer takeover bid was filed by Elon R. Musk, X Holdings I, Inc. with the U.S. Securities and Exchange Commision to acquire 100% of Twitter Inc. for $54.20 per share in cash. Further, in April 2022, Elon Musk entered into a binding merger agreement with Twitter, whilst being an approximate 9.6% shareholder of Twitter Inc.

In its very essence, this makes the Twitter-Elon Musk deal a prime example of a hostile takeover.

Answer – In July 2022, Elon Musk had stated that Twitter had underrepresented the number of spam accounts on its platform in the documents shared by Twitter, when compared the number of spam accounts discovered by Elon Musk’s team during the diligence process. Hence, subsequently Musk had stated that such underrepresentation of spam accounts will constitutes a “material adverse effect”, under the acquisition transaction documents and therefore it was speculated that Musk may walk away from its acquisition of Twitter.

Material Adverse Effect as a clause is a standard clause in any transaction documents wherein the execution of transaction documents and completion/closing are on a separate date. The purpose of these standard clauses is to provide a mechanism to give the Acquirer the right to walk away from the transaction before completion/closing, if the event any of the recorded and agreed events occur that is either detrimental or causes a ‘material adverse effect’ for the Target Company. By example, such events may include a significant reduction in customer demand or loss of a key supplier, or force majeure events such as the recent Covid-19 pandemic.