Why NDTV will need to dig deep in a potential long legal battle with the Adanis

Finally, it has come down to one loan of Rs 403.85 crore that has resulted in a significant change in shareholding at New Delhi Television Limited or NDTV as it is more commonly known. The broadcasting company, founded in the late 1980s, will need to dig deep to retain control at a time when the process looks challenging.

Promoted by Prannoy Roy and Radhika Roy, the story of NDTV’s debt has many layers and goes back to 2008. A company owned by them, RRPL Holdings, borrowed Rs 540 crore from the Gurugram-based conglomerate Indiabulls Financial Services during the middle of that year. A few months later, a loan of Rs 375 crore was taken from ICICI Bank to repay that loan. That was followed by another borrowing from an entity linked to Reliance Industries— Vishvapradhan Commercial Private Limited (VCPL)—to ensure that ICICI Bank’s loan could be repaid. That VCPL-RRPL deal allowed VCPL to indirectly own a 29 per cent stake in NDTV for which RRPL warrants (equivalent to 99 per cent of its equity) were held, though it was an option that was never exercised. In 2012, VCPL was sold to the Mahendra Nahata Group and, as recently as this August, was again acquired by the Adani Group. There is a connection between Nahata and Reliance. In 2010, Nahata’s company, Infotel Broadband, acquired broadline wireless access spectrum across India and, soon after, the company was acquired by Reliance Industries. That was to be the foundation for the launch of Reliance Jio.

The story of the coincidence is remarkable in the sense that Adani Enterprises’ media subsidiary—AMG Media Networks Limited (AMNL)—acquired a 100 per cent stake in VCPL, the very same day that the RRPL warrants were converted into shares by the latter. Arush Khanna, Partner, Numen Law Offices, points out that even in private companies, the law requires the passing of special resolutions and shareholders’ approvals before converting warrants into equity, including statutory compliances before the Ministry of Corporate Affairs. “In the present case, if there has been any procedural violation, NDTV (and/or its promoters) may look to move the National Company Law Tribunal (NCLT) to stall the process and seek course correction.”

Swift Moves 

A big question on people’s minds is, just how hostile a takeover this is. According to Shriram Subramanian, Founder and Managing Director of the proxy advisory firm InGovern Research Services, it is hostile to the extent that the current management is not welcoming a new shareholder. “Having said that, Adani’s buyout of the 29 per cent stake is a done deal. The issue that faces them is how much the open offer will be subscribed since the price is substantially lower (Rs 294 per share) than what the NDTV stock trades at,” he says. (On September 6, the stock closed at Rs 513.85.)

Now, the management of NDTV is miffed about the way the deal has taken place so far, with no intimation having come to them from either VCPL or Adani Enterprises. Khanna is clear that one will have to examine the loan agreement between RRPL and VCPL and, in particular, the clauses relating to the conversion of warrants. “This is necessary to ascertain whether there was a requirement to serve a prior intimation to the promoters and/or the existing shareholders. However, considering the quality of diligence that may have been conducted by the acquirer, it seems unlikely that there was any such requirement,” he says.

What Now? 

To think the Roys may not have a legal option appears to be incorrect. “Depending on the terms of the contract with VCPL, NDTV or its promoters may sue for a breach of contract and seek remedy from the court in an attempt to thwart the Adanis’ bid. Another way could be to raise the value of their own open offer in an effort to gain a larger stake in the company,” explains Avanti T. Chandele, Partner, Mind Legal. As one has seen several times in the past, the role of a potential white knight is critical. Subramanian points out that it really comes down to “finding funds or a friendly backer to put in the money and make a counter offer to shareholders to increase their shareholding.” Another option, he thinks, could be the Roys selling out to the Adanis in a negotiated manner. “There is a scenario of the promoters holding 32 per cent and the Adani Group with at least 29 per cent, which will then likely lead to a boardroom battle,” Subramanian says. According to him, the most likely scenario could be that the Roys may decide to sell out as they have been around for a long time. At a market capitalisation of Rs 3,312.86 crore, their holding in NDTV stands at Rs 1,069 crore.

Quite clearly, there are a myriad possibilities from this point onwards. For Khanna, the open offer price being lower than the current market price is not surprising. “Two of NDTV’s institutional investors—LTS Investment Fund and Vikasa India EIF Fund, holding over 13.5 per cent of the company’s shareholding—also hold stakes in other Adani group companies, and are likely to take the offer. That will give the Adanis a near 45 per cent shareholding in NDTV, most of which would have been acquired at a discounted rate. As for the other shareholders, the tug of war is likely to continue,” he says. Without a doubt, there are many twists and turns in this tale, all waiting to play out.