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NDTV cries foul after Adani Group decides to exercise its right to convert loan into equity, know what a hostile takeover is

An explainer on what exactly happened with Adani Group and its hostile takeover bid for NDTV.

NDTV on Tuesday, in an official communication, claimed that a notice was served upon the media house and its promoters, Prannoy Roy and Radhika Roy by Vishvapradhan Commercial Private Limited (VCPL) stating that it (VCPL) has acquired control of RRPR Holding Private Limited (RRPRH).

VCPL owns 29.18% of equity in NDTV and asked to transfer all equity shares within two days. The right was exercised based on the loan agreement NDTV founders got into VPCL in 2009-10. However, NDTV has claimed that they were not informed about such exercise of rights.

With this, Adani group also said it will launch and open offer to buy another 26% shares from market, making it majority shareholder if the offer comes through.

What is hostile takeover

The term hostile takeover largely means when one company acquires another company against the wishes of the company getting acquired. It may happen when the acquiring company buys shares directly from shareholders of target company. In this case, the Roys have stated that they were not consulted before Adani Group made the open offer to buy shares to form majority stake after loan or other convertible debt instrument is converted into equity. Many times, companies offer ‘convertible debt instrument’ in which after certain stipulated time, the debt instrument can be converted into equity of the lender company. This is a very standard and legal procedure as prescribed in the corporate laws of India.

Here is how Adani made a bid for hostile takeover of NDTV

Vishvapradhan Commercial Private Limited (VPCL), is company incorporated in 2008. In 2009, it offered unsecured loan to NDTV’s holding company, Radhika Roy Prannoy Roy Holding Private Limited (RRPRH) worth Rs 403.85 crore. RRPRH held 29% equity in NDTV.

VCPL, in same year, had received unsecured loan from Shinano Retail Private Limited, which had obtained money from Reliance Industrial Investments and Holdings Limited, a part of Reliance Group. Shinano Retail was a fully owned subsidiary of Reliance Group. Since these documents are publicly available, NDTV was aware that it was obtaining unsecured loan from an entity that was linked to Reliance group. For its part, VCPL was owned by Shinano Retail and Teesta Retail Private Limited, another fully owned subsidiary of Reliance Group.

Note: Here is an unrelated article from 2016 on NDTV wherein it mentions how Teesta Retail is a fully owned subsidiary of Reliance Group. This is shared here to bust certain media propaganda that tries to cast aspersions on how NDTV was unaware. All the details of companies, ownership, shareholding pattern – they are all public documents and one would assume the Roys are not of unsound mind to not carry out due diligence before obtaining unsecured loans in crores from such entities.

Coming back. VCPL’s directors back then were also Reliance Group’s senior executives, so it was quite clear about the ownership of the company that had loaned over Rs 400 crore to NDTV.

In 2012, VCPL’s ownership changed and it was acquired by Nextwave Televenture Private Limited and Skyblue Buildwell Private Limited. These companies were linked to a senior executive, Mahindra Nahata, of Reliance Jio Infocomm Limited, another subsidiary of RIL. Nahata, who also owned Eminent Networks Private Limited, took over ownership of loan that VCPL owed to Shinano. Nahata invested Rs 50 crore in this. Again – all these transactions are in public domain and legal and very standard business practice.

VCPL transferred Rs 50 crore to Shinano and cleared the loan debt it owed. On Tuesday, Adani group took over VCPL, which had given Rs 403 crore loan to NDTV from Nextwave Televenture. NDTV had never returned the loan it took from VCPL. The loan came with terms and conditions that VCPL can convert 99.9% of its loan into equity “at any time during the tenure of the loan or thereafter without requiring any further act or deed on the part of the lender”.

Essentially, VCPL never needed the Roys’ permission to convert the loan into equity. The Roys knew that their stake in NDTV was diluted as back as 2009-2010 when they took unsecured loan convertible into equity from companies with links with Reliance Group. The Roys have to allot 99.5% of their equity shares to Adani owned VCPL through its arm AMG Media Network. After that, AMG Media Network will own 29.18% of equity in NDTV. Since it will own over 25% of equity in NDTV, AMG Media Network has announced open offer to acquire 26% of stake so as to become majority shareholder.

Adani has offered Rs 294 per share, i.e. little less than Rs 500 crore for 26% equity from open market. The Roys together still own about 32% stake in NDTV. But if the Adani deal comes through and Adani gets 55% ownership, it does have the right to make changes in the management and take control from the Roys. The only way the Roys can gain back control is buying more shares from open market and increasing their stake.

Interestingly, in May this year, Adani group’s AMG Media Network bought 49% equity in Raghav Bahl’s Quintillion Business Media Private Limited, the company that runs online website ‘The Quint’, which quite often humanises terrorists and gives context to rape accused.

While certain media houses, along with NDTV, are crying foul and going ‘haaye Modi’, the fact is that the rumours of Adani taking over NDTV have been making rounds since last year. In September 2021, NDTV’s shares hit the upper circuit on BSE after a daylong rumour that Adani was taking over NDTV. NDTV and Adani had both refuted the rumours. Analysts have believed that one of the major reasons for NDTV share prices to have rallied in past few months are because of the rumours of Adani taking over the media house.

On August 24, 2021, NDTV shares on the BSE were trading at Rs 78.65. The open offer came on Tuesday, August 23, 2022. On August 22, 2022, NDTV shares on the BSE were trading at Rs 356.9. Looking at NDTV stock’s movement from January till yesterday (up 227%) coupled with rumours of Adani taking over making rounds since over a year, everyone knew this was coming.

Year long stock movement of NDTV Ltd on BSE

In absence of any pathbreaking profit and allegations of insider trading on the Roys, which show they weren’t quite novices when it comes to stock trading, and bankruptcy looming over their heads as per auditor’s report as latest as 2019, one wonders what else could be the reason for such rallying of share price.

Meanwhile, we wait and see how the things unfold over next few days.

After all, its business.

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Nirwa Mehta
Nirwa Mehtahttps://medium.com/@nirwamehta
Politically incorrect. Author, Flawed But Fabulous.

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