The corporate landscape of India has been conservative in its dealings, as outright battles for control are a rarity as far as the field of M&A goes. In a world where most mergers or acquisitions take place on a cordial note, with both sides as willing parties, a hostile takeover would not have been imaginable even after Swaraj Paul's infamous attempt to takeover Delhi Cloth Mills from the Shri Ram family and Escorts Limited from the Nanda family. In those days, State intervention was not an uncommon occurrence considering the attempts took place prior to liberalization of the Indian economy. The landscape of India Inc. has practically terraformed over the last two and a half decades, with two successful hostile takeovers having already taken place. With Swaraj Paul's attempt, the Securities and Exchange Board of India ("SEBI") enacted the SEBI (Substantial Acquisition of Share and Takeover) Regulations, 1994 to regulate takeovers in India, which was further refreshed in 2011 when the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 ("Takeover Code") came about.
The first successful hostile takeover in India was that of Raasi Cements by India Cements Limited in 1998, as discussed in our 2019 Article ("Previous Article"). There was another high-profile takeover attempt in 2000, by Abhishek Dalmia of the AH Dalmia Group for a 45% stake in GESCO. However, the same was ultimately thwarted by way of the 'White Knight Defense', where the board of the Target Company sought a friendlier company to buy a controlling stake in the Target Company before the hostile bidder could do so. In the case of the GESCO takeover attempt, the company's knight in shining armor was Mahindra and Mahindra which ultimately made an offer at more than double the price per share as compared to the hostile acquirer. While this attempt in and of itself was not successful, it was a demonstration of 2 important facts:
i. that the attempt was thwarted without State intervention;
and
ii. the successful use of the many available defenses to a hostile
takeover bid.
The second successful hostile takeover began in 2019 – that of Mindtree by Larsen and Toubro ("L&T"). The Previous Article also discussed the then incomplete hostile takeover up till the point where L&T made its open offer after buying out one of Mindtree's major stakeholders, V.G. Siddhartha ("VGS"). What unraveled in 2019 was a dramatic chain of events where the Mindtree promoters were skeptical of any 1 person buying VGS out (since despite holding a major stake, he did not interfere with the running of the company) because the same would have entailed conceding board seats and to a certain degree, control, among other concessions. However, L&T made an offer VGS simply could not refuse from a commercial standpoint, offering a price per share just shy of Mindtree's all time high of Rs.1183 per share, at the time. This is informally known as a bear-hug (a bear-hug is an unsolicited takeover bid which is so generous that the shareholders of the target company are very unlikely to refuse). While L&T initially tried to bring the management of Mindtree on board when it was in talks to buy VGS out, it was unsuccessful. It was also determined to acquire the company. At this point, it would be interesting to note that VGS's stake was a whopping 20.32% as opposed to the promoters who collectively held under 14%. L&T then made a voluntary open offer under Regulation 6(1) of the Takeover Code however, this was problematic as the same required at least 25% voting power of the target company. While the matter was under consideration with SEBI, L&T acquired enough shares on the secondary market to exceed the minimum threshold. It is worth noting that Regulation 3(1) already requires an acquirer to make a mandatory open offer upon acquiring 25% voting rights in the target company. The open offer was over-subscribed by public shareholders and led to L&T securing over 60% of Mindtree.
The precedent set by L&T's acquisition of Mindtree is even more important in today's dynamic, where a more aggressive battle has begun for New Delhi Television Limited ("NDTV"). In what could be the just the 3rd successful hostile takeover in India's robust M&A landscape, the Adani Conglomerate ("Adani") has managed to "nearly" secure 29.18% of the popular television network overnight, and further, it has allegedly done so against the apparent will of the promoters Prannoy Roy and Radhika Roy.
The promoters of NDTV – Radhika Roy and Prannoy Roy, through their company RRPR Holding Private Limited ("RRPL"), had taken a loan from Indiabulls Financial Services worth about Rs. 540 crores to fund an open offer in 2008. This loan was paid off through another loan worth Rs. 375 crores from ICICI Bank and in turn, the ICICI Bank loan was paid off with the help of yet another loan in 2009, worth Rs. 350 crores from Vishvapradhan Commercial Private Limited ("VCPL"). Some interesting terms of the loan from VCPL were as follows:
i. The term of the loan is 10 years i.e., up to July 2019.
ii. The loan is an unsecured loan and without any interest
payment.
iii. RRPR will issue a convertible warrant to VCPL, convertible
into equity shares aggregating to 99.99% of the fully diluted
equity share capital of RRPR at the time of conversion, convertible
at any time during the tenure of the loan or thereafter.
iv. VCPL shall have the right to purchase from the promoters all
the equity shares of RRPR at par value.
v. VCPL and its affiliates cannot purchase shares of NDTV which
will increase their holding to more than 26% in NDTV without the
consent of the promoters.
vi. One of the conditions precedents to the execution of agreement
was sale of 11,563,683 shares of NDTV from the promoters to RRPR
such that RRPR holds 26% shares of NDTV.1
Another Rs 53.85 crores was borrowed by the NDTV promoters from VCPL in 2010, taking the total borrowed amount to Rs. 403.85 crores, as an interest-free loan.2
SEBI took note of these terms and issued a show cause notice to VCPL in 2016 alleging that this loan was not a normal investment transaction and that the primary purpose of the loan was to acquire shares of NDTV. SEBI noted that while VCPL had not directly acquired any shares of NDTV or RRPL, and that the pre-condition of RRPL acquiring 26% was enough to prove the intent of an indirect acquisition behind this transaction. In its 2018 order, SEBI held that VCPL had all but acquired RRPL, as it held the right to acquire 99.99%, with a series of call option agreements to acquire 26% of NDTV shares. As per the Whole Time Member ("WTM") of SEBI, this amounted to an indirect acquisition in consideration of the interest-free loan. SEBI had called for VCPL to make an open offer under the Takeover Code and further the 2018 WTM Order noted the structure of the transaction to be unusual as well as a takeover couched as a loan.3 This order stood quashed as of July 2022 when VCPL challenged the same before the SEBI Appellate Tribunal ("SAT"), which held that if the loan remained unpaid, VPCL could not interfere in management decisions of RRPL or NDTV. Additionally, the SAT also held the transaction to be a commercially justifiable arrangement.4 Just about a month later, AMG Media Networks Ltd, a wholly owned subsidiary of Adani Enterprises, acquired VPCL for a total consideration of Rs. 113.74 crores. Adani exercised warrants to acquire a 99.5 per cent stake in RRPL, the promoter entity of NDTV. Since the stake in NDTV held by RRPL is greater than 26%, AMG Media Networks was obligated to issue an open offer for an additional 25% stake in NDTV and they have offered a discounted price of Rs. 294 per share. The NDTV promoters Radhika Roy and Prannoy Roy, are now arguing that because SEBI had passed orders against them in 2020, barring them from the stock markets due to them partaking in insider trading, Adani requires SEBI approval before moving forward with this bid to takeover NDTV.
It will be very interesting to see how this battle pans out, considering NDTV can fight this bid on the anvil of the 2020 order against its promoters, to buy time, while it evaluates its defenses to thwart the takeover bid altogether. Like GESCO, NDTV too could find itself a knight in shining armor to outbid Adani. They could also employ any number of other defenses as outlined in the Previous Article.
Footnotes
2. http://sat.gov.in/english/pdf/E2022_JO2019294.PDF
3. Ibid.
4. Ibid.
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