Adani Group's NDTV acquisition: Who are the winners and losers?
India's media and entertainment industry had a shocking start to their evening yesterday when news broke out that Adani Group had acquired a 29.18% stake in NDTV. Then came the news that they launched an open offer for an additional 26% from public shareholders. This surprising turn of events leads us to the question - who are the winners and losers here?
Why does this story matter?
NDTV's acquisition by Adani Group has been surprising to many. Even NDTV itself. How this deal would affect NDTV's journalism is something that only time will tell. However, it is imperative for us to understand where different parties in this deal stand. One man's gain is another man's loss. In this deal, the difference between win and loss is blurrier than you think.
RRPR was required to issue warrants to VCPL
Adani Group acquired NDTV yesterday, but the story was written in 2009 when Vishwapradhan Commercial Pvt. Ltd. (VCPL) extended a Rs. 400 crore loan to NDTV promoter RRPR Holding. The loan agreement required RRPR to issue warrants to VCPL, which were convertible to more than 99.5% equity shares. It also forced promoters Prannoy and Radhika Roy to transfer some of their shares to RRPR.
How did a loan became the bane?
The loan from VCPL has been problematic for NDTV. Earlier, Securities and Exchange Board of India had found the promoters guilty of not disclosing the loan terms to investors. This loan has again become a bane. VCPL decided to convert the warrants issued to equity shares, giving them a 29.18% stake. They didn't have to pay a dime, because they did so in 2009.
How did Adani Group come into play?
If you're wondering how Adani Group became a part of VCPL's right exercise, you don't have to go much back than last week. VCPL, owned by Surendra Lunia since 2012, was sold to AMG Media Networks Ltd. (AMNL) last week. AMNL is a subsidiary of Adani Enterprises. Therefore, VCPL's decision to acquire 99.99% of RRPR indirectly gave the 29.18% stake in NDTV to AMNL.
Is VCPL a winner in the NDTV acquisition?
VCPL gave Rs. 400 crore to NDTV as a loan in 2009. It is this loan that made it possible for the company to own shares in NDTV in 2022. The 29.18% stake VCPL now owns is worth over Rs. 600 crore, which means a 50% profit in 13 years. Is that a great deal? Well, not really.
VCPL, AMNL, AEL launched an open offer for 26% shares
Another important aspect of the NDTV acquisition is the open offer launched by VCPL, AMNL, and AEL as persons acting in concert. As per SEBI regulations, an entity that requires more than 25% in a publicly traded company needs to launch an open offer to acquire an additional 26% from public shareholders. The trio offered Rs. 294/equity share as per SEBI's takeover guidelines.
The chances of open offer being accepted is less
NDTV's closing price on Tuesday was Rs. 376. The price offered by the trio is Rs. 294, which is 28% less than the closing price. The chances of shareholders accepting this price are very less unless they are exceptionally friendly. As of now, NDTV is trading at Rs. 388.2/equity share. As the price keeps rising, the probability of the open offer being accepted decreases.
Adanis could become the major shareholder in NDTV
From our discussion so far, it is clear that the acquirers aren't clear winners. On the other hand, there are clear losers here - Radhika and Prannoy Roy. Yes, they still own 32.2%. However, there is news coming out that a foreign institutional investor (FII) with a 9% stake could tender its shares to Adanis. This, in turn, would make Adanis the major shareholder.
Acknowledgement
Special thanks to Mr. Deepak Shenoy for his detailed analysis on Twitter and the Spaces session last night. His explanation and knowledge on the subject is second to none.
