Context

• The article discusses the potential takeover bid of NDTV by Adani Group which evokes the dangers of over-borrowing, the growing clout of large corporates in the media business and the need for media companies to focus on subscription revenues.

The genesis

• Issuance of convertible warrants: In 2009, RRPR Holdings, owned by the founders of NDTV, Prannoy Roy and Radhika Roy, issued convertible warrants to a firm called Vishwapradhan Commercial Pvt. Ltd. (VCPL), a Reliance group-backed entity, against a loan taken from the latter.
  • As per agreement between RRPR and VCPL , upon conversion, these warrants are convertible to equity shares equal to 99% of RRPR, which had a 29% stake in NDTV and could be exercised at any point in time during the loan tenure, or thereafter
• About convertible warrants : These are bonds that the investor can exchange for a fixed number of shares at some point in the future. These warrants are given with bonds or preferred stock as an inducement to the investor, because they permit the purchase of the company's common stock at a stated price at any time.
• Reason to issue convertible warrant: The Roy’s RRPR Holdings seem to have agreed to issue such a warrant since they had to refinance loans taken from the ICICI Bank which was charging an annual interest of 19%.
  • The loan itself was first owed to Indiabulls Finance, which helped fund an open offer by NDTV in 2007.
• Other deals in agreement: The agreements between RRPR and VCPL included convertible warrants, call options on NDTV shares issued to VCPL’s associates and protective rights such as the right to appoint a director to RRPR, getting prior written approval from VCPL for RRPR and NDTV to raise funds, buyback shares, set up a subsidiary, sell or pledge RRPR’s shares in NDTV etc.
• Adani’s purchase of VPCL: Now, VCPL and its associates has been bought by AMG Media Networks Limited, an Adani Group company, which converted the warrants into shares in RRPR which triggered an open offer under the Takeover Code.
• NDTV insistence for SEBI aaproval: Adani’s AMG Media Network Ltd. had given RRPR almost 48 hours deadline to convert the warrants and transfer the shares which ended on 25^th Aug, 2022.
  • As per NDTV, Securities and Exchange Board of India (SEBI) has forbidden Radhika Roy and Prannoy Roy to conduct any securities transactions till the end of November 2022, which also extends this prohibition to all the firms that these two promoters possess and thus urge SEBI approval before Adani takeover.
  • However, this argument doesn’t hold firm ground because the loan agreement predates the SEBI ban and is viewed as a tactic to buy time till November,2022.

Why Adani Group want stake in NDTV

• Not a hostile takeover: A hostile takeover occurs when a company or a person attempts to take over another company against the wishes of the target company's board or management. However, Adani, as the new owner of VCPL is just exercising the warrants and therefore has 29% stake of NDTV.
• No intent of gaining control: Adani’s open offer under SEBI rules to buy a further 26% in NDTV at ₹294 a share is far below the current market price of ₹424 a share.
  • If the open offer has to succeed, people should be willing to sell their shares to Adani at 294. But why would they do that when the market price is 30% higher or more.
  • Thus, If Adani wanted to take over, he’d have offered at least as much as the market price of the share, which he hasn’t.
• Reasons for corporate buying share in media houses: Tycoons typically buy media companies because it gets them influence or it is some sort of philanthropic
  • If it were the second, an easier way would be to just inject funds into a media company through say, preference shares or such instruments and give it the resources to pursue independent journalism.
  • With a 29% stake, however, Adani Group can be a prickle in the side of a company’s management because they can block a certain category of shareholder resolutions even if don’t have a say in the day-to-day affairs of the company. These resolutions need 75% of shareholder votes to pass and are also called special resolutions.
• Significance of Special resolution: Buyback of shares, loans and investments by a company and appointment of certain directors, etc, requires a special resolution.

What happens next?

• On its part, NDTV may invoke another clause in the loan agreement which bars VCPL and its associates from purchasing shares of the television company, which will increase their holding to more than 26% in NDTV without the consent of the promoters.
• However this clause can be tricky to apply as VCPL may say that it is just converting holding in RRPR and hence, not purchasing shares of NDTV. This will be a key point of the litigation.

Effect on Indian media

• Increased competition: The Adani Group’s entry into the media business (it already has a 49% stake in BQ Prime) is yet another example of the growing dominance of corporations in this sector.
• Control recital: Companies, often like governments, want to control the narrative. And that narrative will not necessarily serve the interest of the public at large.
• Undue influence: Due to large and diverse conglomerates own media units and also are in regulated sectors such as energy or telecom, there is a significant conflict of interest which could crimp editorial independence as they wouldn’t want to displease the government. This can happen even if the corporate owner tries to maintain an arm’s length relationship with their media entity.

Way forward

• Media companies can maintain editorial integrity by cutting down their dependence on sources of revenues which have an embedded element of conflict of interest. Media consumers (readers and viewers) should be at the forefront and subscription revenues the way forward.