Adani Group’s potentially hostile takeover bid of NDTV Brings home the dangers of over-borrowing, the growing dominance of large corporates in the media business, and the need for media companies to focus on subscription revenue.
Though the move by the Adani Group has turned a blind eye to the management of NDTV, it should not have come as a complete surprise. Convertible warrants issued by a promoter company of NDTV have been hanging like a Damocles sword on it for at least a decade now.
Produce
In 2009, RRPR Holdings, owned by NDTV founders Prannoy Roy and Radhika Roy, issued convertible warrants to a firm named Vishwapradhan Commercial Pvt. Ltd. (VCPL) against loan taken from the latter. Upon conversion, these warrants are convertible into equity shares equivalent to 99.99% of RRPR, which held 29% stake in NDTV. The warrant can be exercised at any time during or after the loan tenure, states the agreement between RRPR and VCPL.
Roy seems to have agreed to issue such a warrant as he had to refinance the loans taken from ICICI Bank, which was charging an annual interest of 19%. The loan was first owed to Indiabulls Finance, which helped fund an open offer by NDTV in 2007.
While the Reliance Group-backed entity VCPL entered as a white knight of sorts to help the RRPR and give interest-free loans, there is no such thing as a free lunch.
Therefore, the agreements between RRPR and VCPL include convertible warrants, call options on NDTV shares issued to associates of VCPL and protective rights such as the right to appoint directors in RRPR, pre-written from VCPL to raise funds for RRPR and NDTV. Getting approved, buybacks included. Shares, setting up of subsidiary company, selling or pledging the shares of RRPR in NDTV etc.
Now, VCPL has passed out of the hands of Reliance and its affiliates and has been bought by AMG Media Networks Limited, an Adani Group company, which wasted no time in exercising the option to convert the warrants into shares in RRPR. It also launched an open offer under the takeover code.
what happens next?
AMG had given RRPR approximately 48 hours to convert the warrants and transfer the shares. That deadline expired on Thursday. NDTV said that since Radhika Roy and Prannoy Roy are not allowed any securities transaction by the Securities and Exchange Board of India (SEBI) till the end of November this year, the restriction also applies to all firms that are affiliated to these two promoters. are near. It said that approval of SEBI is required.
Proxy advisor and InGovern founder Sriram Subramaniam said this defense used by Roy is thin as the loan agreement predates the SEBI ban. The time to buy is till November. Whatever it is, the curious thing is that Adani’s open offer under SEBI rules is 26% at Rs 294 per share in NDTV and well below the current market price of Rs 424 per share to buy.
To be sure, the market value of NDTV has risen by about 186% in the last six months on speculation of a sale and the fair value may be much lower.
However, if Adani Group is intent on regaining control, why is its open offer price at such a discount to the market price? One conclusion is that he may not want to gain control. But then, what will he gain with his 29% stake in NDTV?
Tycoons usually buy media companies because it affects them or it is some kind of philanthropic effort. If it were the second, an easier approach would have been to inject money into a media company through preferential shares or such tools and give it the resources to pursue independent journalism. A messy takeover battle isn’t how one does philanthropy.
However, with a 29% stake, the Adani Group — or any investor for that matter — could be a thorn in the company’s management. This is because they can block a certain class of shareholder offers called special offers. These resolutions require 75% shareholder votes to pass.
A special resolution is required for buyback of shares, loans and investments by a company and appointment of certain directors etc. A shareholder with a 29% stake can stop this and get upset even if they don’t have a say in the day-to-day affairs of the company.
Now that Roy has set his heels in motion, Adani may take the matter to court. In a statement on Friday, Adani pointed out that he did not come across NDTV’s argument and expressed surprise at the latter’s stand.
On its part, NDTV will also invoke another clause in the loan agreement, which bars VCPL and its affiliates from buying shares of the television company, thereby increasing their stake in NDTV to more than 26%, without the consent of the promoters.
According to company law expert Jayant Thakur, this clause may be difficult to implement. This prevents VCPL or its affiliates from directly buying shares of NDTV as it would increase their stake to more than 26%. But, he says, the question is whether this will prevent the conversion of warrants into RRPR making VCPL effectively the owner of 99.99% of the capital and thus controlling over 26% of NDTV.
VCPL can say that it is only converting the stake in RRPR and hence, is not buying the shares of NDTV.
This will be the main point of the lawsuit.
Impact on Indian Media
Adani Group’s foray into the media business (it already holds 49% stake in BQ Prime) is another example of the growing dominance of corporations in the sector. Companies, often like governments, want to control the narrative. And this narrative is not necessarily in the interest of the public at large.
Furthermore, when large and diverse groups group their media units, there is a significant conflict of interest that can inhibit editorial independence. Some of these other large businesses are in regulated sectors such as energy or telecommunications, where the government has a say, and corporations will displease the government, whether at the Center or in the states. This can also happen when the corporate owner tries to maintain a hands-on relationship with its media entity.
Media companies can maintain editorial integrity by reducing their reliance on sources of revenue that have an inherent element of conflict of interest.
Media consumers (readers and viewers) should be at the fore and subscription revenue should be on the front.
Khushboo Narayan is the Dean of the ACJ-Bloomberg Program at the Asian College of Journalism, Chennai.