NDTV falls into Adani lap as media struggles for size

25 Aug 2022 , 11:03 AM

For close to 38 years, the very name of television journalism had been synonymous with one man who had set the standards way back in 1984; Dr. Prannoy Roy. The family of Prannoy Roy, as promoters of NDTV, held 61.54%. However, things changed on 23rd August 2022 after the Adani Group confirmed that its media venture had picked up an indirect 29.18% stake in NDTV. This was done by buying out the holding company of the NDTV promoters, RRPR Holdings Private Limited.

This will make the Adani media venture the second largest shareholder in NDTV at 29.18%, just behind the founders (Prannoy Roy and Radhika Roy), who jointly hold 32.26% in their individual names. As per the SEBI extant regulations on takeovers, Adani group will have to make an open offer to the non-promoter shareholders to buyout another 26% in the company. Adani wants to initiate that step next.

Combined with the open offer, the Adani group will hold 55.18% of NDTV and get effective control. But, before getting into the open offer details, here is a quick look at how the deal evolved over time.

How a Rs400 crore loan became a stake sale

At the heart of this entire takeover is a rather innocuously named company called Vishvapradhan Commercial Private Limited (VCPL), which had advanced a loan of Rs400 crore to Prannoy Roy and Radhika Roy back in 2009. Back then, the Ambani family had an indirect stake in VCPL. One of the caveats of the loan given to the promoters of the NDTV group was that they would in exchange issue warrants to VCPL enabling them to acquire the entire holding company RRPR Holdings Private Ltd. Obviously, since RRPR Holdings owned 29.18% in NDTV, conversion of the warrants would be equivalent to 29.18% in NDTV.

Not much moved on this front over the last 13 years, except that VCPL changed several hands over the years. Over the last 13 years, neither did the promoters of NDTV pay back the loan taken from VCPL, nor did VCPL convert the warrants into shares. Things came to a head after the Adani media venture acquired 100% in VCPL. They immediately decided to exercise the right to convert the warrants into a 99.5% stake in RRPR Holdings Private Limited which gave them 29.18% in NDTV. The NDTV promoters have protested that they were not aware of the conversion, but it was the caveat all along.

Will the investors prefer to go with the Adani deal?

While 29.18% stake in NDTV gives the Adani group veto power in the case of special resolutions, it does not given them control of NDTV. For that, they need to get to 51% and that will happen post the open offer. When it comes to the success or otherwise of the open offer, there are 3 questions that are foremost. Firstly, what will the institutional investors in NDTV do? Secondly, will the retail investors be happy with the management change. Thirdly, is the open offer price attractive enough? Let us look at how the deal stands on each point.

a)      When it comes to institutional shareholders in NDTV, the largest shareholder is LTS Investment Fund, Mauritius, which holds 9.75% in NDTV. Incidentally, if you look at the India portfolio of LTS Fund, it is worth Rs18,995 crore. Interestingly, holdings worth Rs18,572 crore (97.7%) is spread across Adani Power, Adani Transmission, Adani Enterprises and Adani Total Gas. It is fairly clear which way LTS will vote.

b)      What about the retail investors. If you look at the stock price reaction, the stock is up from Rs157 to Rs408 in the last 3 months. Since the start of August, when the deal talk was doing the rounds, the stock of NDTV has moved up from Rs265 to Rs408, clearly showing that retail investors also favour a big balance sheet backing NDTV. That brings us to the last issue of the open offer price.

c)      Adani group has set the open offer price at Rs294 based on the SEBI formula. However, with the current price at Rs408, NDTV shareholders may not find the open offer too attractive. While it can be argued that the price spike was caused in anticipation of the Adani deal, the reality is that the Adani group will be more than happy to revise the price upwards to reflect the current market price better.

So it does look like the Adani group is on a strong wicket with respect to the open offer.

Deal is a sign of more corporatization of media

For all those who decry the corporatization of media, it must be remembered that media is a business too and for any business there is the need for a large balance sheet and deep pockets. This trend is not only in India but also globally. If you look at the Indian context, the CNBC and TV18 franchises are already owned by the Reliance group. Business Standard, which was formerly owned by the ABP group, was sold to Kotak Mahindra nearly 25 years ago. Times publications and news channels are already part of the redoubtable Bennett Coleman group, which is known for its deep pockets. Even the India Today group is almost 41.5% owned by the Aditya Birla House, through group companies.

The Adani deal is hardly surprising and was doing the rounds as early as September 2021, although it took a full 1 year to fructify. Adani also owns Quintillion Media, which was founded by Raghav Bahl, after he sold TV18 to Reliance group. For the Adani Media venture, this gives the group total control over 2 very strong media properties; one with a strong television franchise and the other with a digital franchise. The deal was always waiting to happen. India media had little choice anyways, but to eventually corporatize.