On the face of it, the acquisition of prominent media house NDTV by the Gautam Adani-led Adani Group looks quite complicated. Business standard dives deeper into analyzing the numbers and qualitative characteristics of the strategy to explain how it is planned and how it delivers the desired outcome to the acquirer.
August 23, 2002: Gautam Adani-led Adani Group acquires 100 percent stake in Vishvapradhan Commercial Private Limited (VCPL).
VCPL held convertible debentures (in the form of warrants) in Radhika Roy Prannoy Roy (RRPR) Holding Pvt Ltd, which in turn held 29.18 per cent stake in NDTV Ltd. So with the purchase of VCPL, Adani Group has indirectly acquired these warrants which will give it 29.18 per cent stake in NDTV Ltd on conversion.
In August, VCPL again notified RRPR Holding of its intention to convert these warrants (issued in 2009) into shares, giving the firm 99.5 percent control. With these shares of RRPL Holding, Adani Group controlled VCPL got 29.18% stake in NDTV Ltd.
Armed with a 29.18 percent indirect stake in NDTV Ltd, Adani Group launched an open offer (as per Sebi norms) to acquire an additional 26 percent stake in the Delhi-based news channel on 22 November. The open offer will end on December 5 this year.
The transfer of equity shares from RRPR Holding to VCPL was completed on Monday, November 28. NDTV’s promoter firm RRPR Holding said in a disclosure to stock exchanges that it has transferred shares constituting 99.5 percent of Vishvapradhan’s equity owned by Adani group Commercial (VCPL).
This share transfer will now give Adani Group direct control of 29.18 percent stake in NDTV.
As at Monday’s close, stock data showed that Adani’s open offer attracted bids for 5.3 million shares, or 31.78 percent of the 16.8 million shares on offer so far.
On Monday, NDTV shares were locked in a 5% upper range on the BSE, settling at Rs 406.10 apiece.
Adani’s open offer price is Rs 294 per share, while NDTV shares settled at Rs 368.40 on the first day of the open offer (Thursday), a 25.3% premium over the offer price.
What is an open offer?
The open offer is part of the takeover code as defined by the Securities and Exchange Board of India (Sebi).
It is an offer made by the acquirer to the shareholders of the target company, inviting them to tender their shares at a specified price.
An open offer is triggered when a company acquires up to a 15 percent stake in another listed entity; i.e. the acquirer must make an offer to existing shareholders to purchase an additional 20 percent stake in the target firm.
An open offer usually continues to run for about a month from the date of announcement.
The main purpose of the open offer is to provide an exit option to the shareholders of the target company upon a change of control of the target company or a substantial acquisition of its shares.
Open offer in case of NDTV
As the Adani Group emerged as a major shareholder with a 29.18 percent stake in NDTV, it made an open offer to buy another 26 percent so that minority shareholders who wish to exit NDTV could tender their shares.
The conglomerate, run by India’s richest man Gautam Adani, acquired a little-known company in August that lent more than Rs 400 crore to NDTV’s founders more than a decade ago in exchange for warrants that allowed the company to acquire a stake of 29, 18 percent in the newsgroup at any time.
VCPL, the firm that the Adani group bought out, then announced that it would launch an open offer on October 17 to buy an additional 26 percent stake from NDTV’s minority shareholders. However, the offer was shelved as Sebi had not given its approval for the open offer.
This will lead to a change in the control structure of NDTV. However, in the interview, Gautam Adani said that he had invited NDTV’s founding owner Prannoy Roy to continue as the head of the media house.
He added that buying NDTV was more of a “liability” than a “business opportunity”.
Why is the open bid price lower than the market price?
As per Sebi’s pricing formula under its takeover code, the open offer – in case of direct and indirect acquisition – must be the higher of i) the highest negotiated price under the share purchase agreement (ii) the weighted average price per unit over 52 weeks; (iii) the highest price paid by the acquirer during the 26 weeks prior to the announcement, or (iv) the volume-weighted average market price of the stock during the 60 days prior to the announcement.
In this case, since the price was lower prior to the acquisition of 29.18 percent of NDTV shares, the open offer price was determined in accordance with SEBI (Substantial Acquisition of Share and Takeover) regulations.
With PTI inputs