Adani’s Aggressive Acquisition of The Media House – NDTV
In the past few months, Adani’s move to acquire NDTV has been a hot topic, and then the valuation of shares of the Adani Group has been in talks. It might have come as a shock, but if we look at the sequence of events in which the deal happened, one is inclined to say that Adani’s takeover of NDTV was more of a ‘calculated move.’
Extending a loan to launch the takeover of a company is the oldest trick in the asset acquisition playbook. For Gen Z, let me put this in a simpler way, it’s like peasants losing their land to greedy landlords who leveraged loans extended to them in times of distress.
Ironically, this asset acquisition scheme worked well in the modern era, when on August 23, 2022, Adani Group acquired the private Indian broadcaster NDTV via Vishvapradhan Commercial Private Limited (VCPL).
At the heart of Adani Enterprises’ NDTV takeover is a Rs. 403.85 crore loan
To understand this better, let’s take a short trip through history. VCPL was established in 2008 as a consultancy and management firm with no assets or income of its own. Its entire capital came as an unsecured loan from another lesser-known company, Shinano Retail, whose capital came via an unsecured loan from a subsidiary of Reliance Industries Ltd.
More than a decade ago, NDTV founders Radhika and Prannoy Roy took a Rs. 403.85 crore loan from VCPL for NDTV promotor company RRPR Holding Pvt Ltd. Against this interest-free loan, RRPR Pvt Ltd issued warrants that allowed VCPL to convert them and acquire a 29.18% stake in the newsgroup.
What are interest-free loans?
Interest-free loans, also known as zero-interest loans, are those where the person is not required to pay any interest. Only the principal amount is required to be paid off. Some common examples of interest-free loans are interest-free home loans, interest-free education loans, and interest-free business loans.
Are interest-free loans, really free?
Well, sorry to burst the bubble; these loans are not free. Many lenders may demand additional fees to provide such interest-free loans, and if the borrower fails to pay the principal amount within the given time frame, he might have to face the wrath of high penalties and fines.
What role did an interest-free loan play in this deal?
As per the terms of the loan agreement between VCPL and RRPR Pvt Ltd, VCPL could convert the debt into 99.9 per cent of the shares in RRPR Pvt Ltd “at any time during the tenure of the loan or after that without requiring any further act or deed on the part of the lender.”
In August 2022, Adani group, through its media arm AMG Media Networks Ltd, a wholly-owned subsidiary of Adani Enterprises, took control of VCPL and decided to exercise the rights to convert those warrants that allow the company to acquire a 29.18% stake in the newsgroup. The promotors Radhika Roy and Prannoy Roy continue to hold a 32.26 per cent stake in NDTV.
It seems the Adanis blindsided the mega news network. Shortly after the Adani group announced the buyout, NDTV said it was done “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.”
Furthermore, after the acquisition, as per the SEBI’s (Substantial Acquisition of Shares and Takeovers) Regulations, Adani group firms, VCPL, AMG Media Networks and Adani Enterprises Ltd. must put forward an open offer to buy another 26% from the minority shareholders of NDTV.
Now, what is an open offer?
According to SEBI, an open offer is made by a company acquiring shares from the target company’s shareholders, inviting them to sell their shares at a particular price. The purpose of the open offer is to provide an option to the company’s existing shareholders to exit since there is a change in control or substantial acquisition of shares.
The Adani group made an offer for Rs. 294 a share, a significant discount of 38% from the share market price of Rs. 471.50, while NDTV shares settled at Rs. 368.40 on the first day of the open offer, which is a premium of 25.3 % over the offer price.
“Thus, the said transaction will result in an indirect acquisition of voting rights over 25% of NDTV, triggering an open offer by VCPL under the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“SAST Regulations”) for up to 16,762,530 fully paid-up equity shares, constituting 26% of the voting share capital of NDTV,” Adani Enterprises said in the BSE filing.
How did the promoters make money in this deal?
No one makes money in this deal, but NDTV’s stock is zooming. The stock itself is up over 100% in the last month alone. Shareholders are now seeing the stock price return to Rs. 400, which is still lower than the highs of 2007-08. There is no money to be made in the open offer itself.
As a result of such a hostile takeover, the founders of the NDTV Channel are not the majority shareholders and have no say in which the company or its activities would be undertaken. This takeover is a real-life example of the most important lesson Shark Tank taught to Indian Entrepreneurs
“Know the value of your Equity. It is very important. Don’t give it just like that”.
FAQs on Adani’s Aggressive Acquisition of The Media House – NDTV
A hostile takeover is a corporate acquisition by the acquirer while the target company’s management opposes the deal. The acquiring company bypasses the target’s leadership and directly approaches shareholders with an offer. This can involve a tender offer or an open offer or a proxy fight to gain control of the target company’s board. It is hostile because target company’s original management is not willing to transfer the ownership to the acquirer.
Yes, if one wants to buy a home, fund education for his children, wants to start his own business, or for similar personal or business purposes, interest-free loans can be used .
Traditional banks do not typically offer interest-free loans as they are in the business of making money through interest on loans. However, some banks, lenders or non profit organizations may offer interest free loans for marketing or promotional purposes with specific terms and conditions in order to increase their customer base.
The benefits of using an open offer to acquire a company include the following:
• This is a transparent process as it is regulated by the relevant stock exchange.
• This process allows access to a wider pool of shareholders.
• This is a relatively faster process and can be completed in a shorter period of time.
An open offer is a method of acquiring shares in a target company, whereas private placements and IPOs are methods of raising capital. Private placements involve the sale of securities to a select group of investors, while IPOs involve offering company shares to the public for the first time
Risks and challenges associated with launching an open offer include the possibility of the offer being rejected by shareholders, regulatory approval hurdles, potential legal disputes, and fluctuations in the target company’s share price.
Investors’ responses to aggressive acquisitions can vary depending on factors such as the strategic fit between the acquiring and target companies, the acquisition price, the expected synergies, and the potential impact on the acquiring company’s financial performance. Some investors may view aggressive acquisitions positively if they believe it will create value, while others may be concerned about the risks involved. Mostly investors respond positively to such acquisitions if they believe that the strategy will lead to more profit for the company.
Risks and challenges associated with aggressive acquisitions include overpaying for the target company, difficulty in integrating the target company, potential regulatory or legal issues, cultural clashes between the acquiring and target companies, and negative impacts on the acquiring company’s financial performance.
To mitigate the risks and challenges of pursuing an aggressive acquisition, companies need to be careful with the planning and execution of the same. A thorough due diligence, negotiating favorable terms and conditions, establishing a clear integration plan, maintaining open communication with stakeholders, and ensuring that they have the necessary resources and expertise to manage the acquisition process effectively.
To mitigate the risks and challenges of pursuing an aggressive acquisition, companies need to be careful with the planning and execution of the same. A thorough due diligence, negotiating favorable terms and conditions, establishing a clear integration plan, maintaining open communication with stakeholders, and ensuring that they have the necessary resources and expertise to manage the acquisition process effectively.