Will NDTV turn out to be Adani's most challenging acquisition?

In the past two-and-a-half years, the Adani Group has made about 30 acquisitions shelling out over 20 billion dollars. They have largely been a smooth affair. In the same period, Chairman Gautam Adani’s net worth multiplied, as the shares of his seven listed group companies surged. Today, he’s worth $141 billion, and trails Elon Musk and Jeff Bezos in the global rich list. 

Some of the group’s big acquisitions in the last decade or so have been Abbot Point Coal Terminal in Australia in 2011, Dhamra Port in 2014, Mumbai power utility in 2017, GVK Airport Developers in 2020, Holcim’s India assets and DB Power in 2022, among others.   

Adani’s biggest acquisition yet – Holcim’s India assets Ambuja Cement and ACC – was announced on May 15th. The group’s open offer was launched on August 26th.

But Adani is facing resistance to its relatively smaller takeover bid for NDTV.

In 2009, NDTV promoter company RRPR Holdings, owned by its founder Radhika and Prannoy Roy, took a 400 crore rupees loan from Vishvapradhan Commercial, or VCPL, and in exchange issued warrants that give the company a 99.99% stake in RRPR on conversion into shares. RRPR holds a 29.18% stake in NDTV. 

On August 23rd, Adani said it had acquired VCPL and exercised the rights, which NDTV said was done without its consent.

NDTV said the Roys were prohibited from dealing in India's securities market until November this year due a 2020 SEBI decision in a case of suspected insider trading and therefore RRPR cannot convert the warrants it issued to VCPL.

Although Adani said SEBI restrictions were not applicable on RRPR, both Adani and NDTV have now sought clarifications from the regulator. 

Last week, NDTV promoter entity RRPR said it would require the Income Tax department’s approval to convert warrants into equity shares to now Adani-owned VCPL as authorities attached its stake in NDTV as part of a reassessment of its taxes.

Adani countered saying the order applies only to shares of NDTV held by RRPR and in no manner restricts it from converting VCPL’s warrants. It added that the Roys tried “to further inordinately delay” the deal.

Pritha Jha, Partner, Pioneer Legal says, SEBI’s restriction on NDTV founders doesn’t affect RRPR. NDTV using IT Dept order to slow down the deal. I&B Ministry and TRAI approvals are also required. 

Ravi Kumar, Partner, IndusLaw says, If SEBI takes a view, it could become part of the litigation. No response from the regulator could delay the deal. If SEBI gives up jurisdiction, Roys can take the matter to court. 

Ravi Kumar says the only way Roys can fend off the takeover attempt is to find a white knight but that it’s a tough task.

Meanwhile, Adani’s open offer for an additional 26% stake in NDTV will tentatively open on October 17th. The response, however, could be tepid, since NDTV shares are trading at a 75% premium to the open offer price.

While it’s uncertain if SEBI and Income Tax department will come back with a quick response, the Roys could have a surprise to throw. They can bring up a clause from the original loan agreement which states that VCPL and its affiliates cannot purchase shares of NDTV which will increase their holding to more than 26% in the company without the consent of the other parties.

One could argue that in the current transaction, Adani group’s acquisition of NDTV stake is routed indirectly and would not violate the clause. 

It is not VCPL that is directly acquiring NDTV shares. The shares are still held by RRPR, but the conversion of warrants would give VCPL control of RRPR.

Pioneer Legal’s Pritha Jha says the clause would have to be read harmoniously with the rest of the provisions in the loan agreement. 

Given how the takeover bid is structured, legal experts believe that Adani would have both anticipated and prepared for this kind of pushback from the NDTV founders.

But it could all come down to the interpretation of the agreement, making the acquisition process painful for the Adani Group.