Introduction

A hostile takeover is characterized as an unsolicited acquisition of a company's management and operations, conducted without the approval of the target company's management and lacking any friendly negotiations.1 The acquiring company directly engages with the shareholders of the target company, paving the way for obtaining a stake in the target entity.

Although the term "hostile takeover" is not explicitly defined in the Indian Companies Act of 2013,2 subsequent regulations provide clear guidelines for the process of acquiring a company through unfriendly means. The Substantial Acquisition of Shares and Takeover Regulations,3 2011, established by the Securities and Exchange Board of India (SEBI), offers a comprehensive framework for mergers, acquisitions, and takeovers.

This article examines Adani Enterprise's acquisition of a 65% stake in New Delhi Television Limited (NDTV) through various tactical takeover methods. The initial section provides an overview of the takeover conducted in three strategic phases, while the subsequent section outlines the potential defenses that NDTV could have employed to resist the takeover initiated by Adani Enterprise.

Adani's Tactical Move: Decoding the Strategic Acquisition of NDTV

Adani Enterprise Limited, headquartered in Ahmedabad, Gujarat, is a publicly listed holding company of the Adani Group. Established in 1989 as a television production house by Prannoy Roy and Radhika Roy, NDTV later transformed into an independent news network, headquartered in New Delhi, India. In 2022, Adani Enterprises acquired Vishvapradhan Commercial Private Limited (referred to as "VCPL"), a lesser-known company. VCPL had provided a loan of INR 403 Crore to NDTV founders. Through its wholly-owned subsidiary, AMG Media Networks Ltd., Adani Enterprise obtained a 29.18 percent stake in NDTV by acquiring VCPL.4

The acquisition became feasible as VCPL held an option to exercise warrants for taking over RRPR Holdings Private Limited, the holding company of NDTV promoters Prannoy Roy and Radhika Roy. The Roys, via RRPR Holdings, possessed a 29.18 percent stake in NDTV. According to Takeover Regulations, specifically Reg. 3(1), 4, 5(1), 14, 15,5 when an acquirer's stake surpasses the 25 percent threshold, either directly or indirectly, the acquirer must make an open offer for an additional 26 percent in the same target company.6 Adani Enterprise, holding a 29.18 percent stake in NDTV through AMG Media Networks Ltd., executed an open offer, acquiring an additional 8.27 percent stake.

Furthermore, NDTV promoters sold a 27.26 percent stake from their remaining 32.26 percent shareholding to Adani Enterprise. The shares were sold at a 17 percent premium compared to Adani Enterprise's open offer price. Under Takeover Regulations, Reg. 10(1)(a) provides an exemption for provisions of Reg. 3 and 4 in the case of an inter se transfer. In such transfers, the requirement for an open offer is waived if it complies with the terms outlined in Reg. 10.

In 2016, SEBI raised concerns about the terms of the loan agreement between NDTV and VCPL, alleging that it aimed to acquire NDTV shares. However, the Securities Appellate Tribunal (SAT), in an appeal, deemed the agreement commercially justifiable.7

Unraveling the Legal Threads: Analyzing the Adani-NDTV Hostile Takeover

The recent event involving the hostile takeover of NDTV by Adani Enterprise has triggered profound legal considerations within the landscape of takeovers in Indian jurisprudence. This strategic acquisition unfolded in three distinct phases, primarily revolving around the acquisition of Vishvapradhan Commercial Private Limited (VCPL). Subsequently, this led to the mandatory open offer, and finally, the promoters of NDTV sold their stake, which Adani acquired through an inter se transfer.

The pivotal aspect demanding a characterization of the takeover as hostile revolves around the intricacies of the loan agreement. Notably, the loan agreement granted VCPL the option to exercise convertible warrants during or after the loan term. However, this option remained unexercised before Adani Enterprise's involvement, allowing the Roys to maintain control. Another clause in the loan agreement prevented VCPL from purchasing NDTV shares exceeding a 26 percent stake without explicit consent from the promoters.8

Contrary to the loan agreement terms, Adani Enterprise executed the takeover of VCPL and the subsequent conversion of warrants, obtaining a 29.18 percent stake in NDTV. This breached the loan agreement terms, triggering the open offer threshold, and Adani increased its stake by over 8 percent. The Roys initially claimed that no deliberation occurred before exercising the convertible warrants.

NDTV had potential defenses, including seeking damages, specific performance of the contract, or challenging the conversion under Takeover Regulations, aiming to declare the open offer void. However, shareholder acceptance of the open offer posed challenges for NDTV. Additionally, conflicting terms in the loan agreement, providing VCPL the power to exercise the conversion option at any time, complicated the situation.

The crux of Adani Enterprise's stake acquisition in NDTV lay in the VCPL acquisition. VCPL's loan of over INR 400 crores to RRPR, the holding company of NDTV, was pivotal for Adani Enterprise to influence NDTV's voting rights share. Termed as an indirect acquisition, it adheres to Regulation 5(1) of the Takeover Regulations, involving control acquisition through an intermediary entity with an existing controlling interest.

The regulatory landscape necessitates disclosure requirements for both the acquirer and the target company. Regulation 30(1) of the Takeover Regulations mandates disclosure within 7 working days for any person holding more than 25 percent shares or voting rights. Adani Enterprise's acquisition of VCPL, holding convertible warrants of RRPR Holdings, triggered the disclosure requirement under Regulation 30.These disclosure requirements aim to safeguard shareholder interests amid uncertain conditions, recognizing that shareholders may not participate in daily company operations. Moreover, open offers are mandated when the acquirer's acquisition crosses the 25 percent threshold, requiring an offer for at least an additional 26 percent stake.9 This step facilitates an exit opportunity for dissatisfied shareholders.

Acquirers typically set offer prices higher than market prices to increase control. Adani Enterprise's open offer presented an interesting scenario, with NDTV shares trading higher than the offer price. This aligns with Regulation 8 of the Takeover Regulations, which determines the minimum open offer price based on the volume-weighted average market price for sixty trading days preceding the public announcement.

The takeover faced potential hindrance from a SEBI order prohibiting the Roys from accessing the securities market for two years. Initially contended by the Roys, the order did not impede the takeover as it involved a pre-existing arrangement and a straightforward conversion of warrants10.

Adani Enterprise's inter se transfer acquisition of promoter stakes, completed 18 days after the open offer, adhered to exemptions outlined in Regulation 10 of the Takeover Regulations. Regulation 8 specified offer prices under certain conditions, with exiting shareholders entitled to the same price within 26 weeks from the public offer announcement.

Despite these intricacies, the regulatory authority has not scrutinized the discrepancy in the completion timeline of the deal post the open offer. This raises questions about the potential impact on premium pricing under the Takeover Regulations.

Conclusion

The acquisition is identified as one of the most assertive hostile takeovers within the Indian takeover legal framework. There are gaps in the deal that remain unexplored by regulatory authorities. Nonetheless, the takeover was strategically executed to leverage the maximum benefits provided by the Takeover Regulations. With Adani holding a stake exceeding 64 percent, significant changes in the company's management are anticipated, despite assurances from AEL that these adjustments aim to elevate NDTV to a global platform. The astuteness of the takeover warrants acknowledgment and examination in the context of the Takeover Regulations.

As the landscape of mergers and acquisitions undergoes rapid changes, the Takeover Regulations have adeptly adapted to the dynamic environment. However, specific areas call for a more robust regulatory stance from SEBI, and this particular takeover underscores the need for such reinforcement.

Footnotes

1.Auerbach, A. J. (1991). Corporate takeovers: causes and consequences. University of Chicago Press.

2.The Indian Company Act, 2013.

3.Substantial Acquisition of Shares and Takeover Rules, SEBI Regulations, Securities and Exchange Board of India https://www.sebi.gov.in/legal/regulations/nov-2022/securities-and-exchange-board-of-india-substantial-acquisitionof-shares-and-takeovers-regulations-2011-last-amended-on-november-9-2022-_64907.html.

4.https://thewire.in/business/gautam-adani-ndtv-takeover

5. Substantial Acquisition of Shares and Takeover Rules, SEBI Regulations, Securities and Exchange Board of India https://www.sebi.gov.in/legal/regulations/nov-2022/securities-and-exchange-board-of-india-substantial-acquisitionof-shares-and-takeovers-regulations-2011-last-amended-on-november-9-2022-_64907.html.

6.Id.

7. Viswapradhan Commercial Private Limited (A.NO. 293 OF 2018), (July 20, 2022), http://sat.gov.in/english/pdf/E2022_JO2019294.PDF.

8.https://thewire.in/business/gautam-adani-ndtv-takeover

9.https://singhania.in/blog/exemptions-under-the-takeover-code

10. Supra note 7.

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