Explained | What’s next on Adani’s proposal to acquire NDTV?

What are the possible legal implications of the proposed takeover? How is the Adani Group going about the takeover?  

The story so far: A battle to control the management of New Delhi Television Ltd. (NDTV), which operates one of the leading television news outlets in the country, is brewing between the Adani Group and the founders of NDTV. On Tuesday, the group announced that it would indirectly take over control of 29.18% of NDTV in lieu of unpaid debt. The Gujarat-based conglomerate also said it planned to make an open offer worth ₹493 crore to NDTV’s public shareholders to acquire an additional 26% of the media outlet to comply with the rules laid down by the Securities and Exchange Board of India (SEBI). If the open offer made by the Adani Group entity is successful, NDTV would come under the control of billionaire Gautam Adani’s expanding business empire.

NDTV’s promoters and their holding entity Radhika Roy Prannoy Roy Holding (RRPR) had taken an interest-free loan of a little more than ₹400 crore from Vishvapradhan Commercial Pvt. Ltd. (VCPL), a firm indirectly controlled by billionaire Mukesh Ambani’s Reliance Industries, in separate tranches, in 2009 and 2010. According to the loan agreement, the Roys transferred a portion of their shares to RRPR such that RRPR in effect owned 29.18% of NDTV. Warrants were also issued to VCPL allowing the entity to acquire 99.9% of equity in RRPR in case the loan was unpaid. Before the loan, the Roys owned a majority stake of about 55% in NDTV. Right now, Radhika Roy and Prannoy Roy together hold about 32.26% of the company in their individual capacities. On Tuesday, AMG Media Networks, a wholly owned subsidiary of the Adani Group’s flagship Adani Enterprises Ltd. bought VCPL from its current owners for ₹113.74 crore and immediately exercised the warrants to acquire a 29.18% stake in NDTV and announced an open offer to buy an additional 26% stake.

On first look, the partial takeover seems to be legally valid as the terms of the loan agreement suggest that VCPL is well within its rights to exercise the warrants to convert the debt it issued into equity. However, Prannoy Roy and Radhika Roy have contended that they would not be able to transfer RRPR’s stake in NDTV to VCPL as they are barred by a SEBI order from dealing in the securities market for two years till November. They have also contended that they were not consulted by the lender before the exercise of the warrant. Creditors, in most instances, do not necessarily need to seek permission from borrowers before they exercise any warrant to take control of the indebted entity. While the Securities Appellate Tribunal’s order dated July 20, 2022, cites the loan agreement to note: “VCPL and its affiliates cannot purchase shares of NDTV which will increase their holding to more than 26% in NDTV without the consent of the promoters”, whether this clause also covers the conversion is not clear. Only a perusal of the fine print of the loan agreement, which is not in the public domain, can shed light on whether the creditor was required to consult with the Roys before exercising the warrants.

The Adani Group acquired VCPL, the original lender to NDTV’s promoters, and then used its ownership of VCPL to exercise the call option on the warrants to gain control of a 29.18% stake in NDTV. The potential ‘hostile’ takeover of NDTV by the Adani Group has got many worried about its implications for media independence. They contend that corporate ownership of news media organisations could lead to increased bias and censorship. Even though the news industry has been struggling to grow and stay profitable, large corporations have at the global level shown interest in acquiring news outlets. Jeff Bezos, a billionaire and the chairman of Amazon, bought The Washington Post in 2013. Earlier this year, Adani Enterprises bought a 49% stake in Quintillion Business Media.

The Roys and the Adani Group may get involved in either a protracted legal battle or an aggressive bidding war to gain majority control over NDTV. The open offer by Adani seeks to purchase 26% of NDTV from public shareholders at ₹294 per share. The price offered to public shareholders is much lower than the market price of NDTV’s shares, which closed at about ₹423 rupees on Friday. NDTV’s shares have risen rapidly recently probably in the expectation that a higher price could soon be offered to public shareholders. The Adani Group, with its financial power, however, may hold the upper hand in any bidding war to acquire shares from public shareholders.