Daybreak - The curious case of Adani’s open offer to NDTV’s public shareholders

Episode Date: December 5, 2022

More than 53 lakh NDTV shares were tendered when Adani's open offer ended on Monday. But many of NDTV’s public shareholders sold their shares to Adani Enterprises at a price lower than the current market rate. Why? Tune in to find out.Also, read this edition of Ka-Ching by Anand Kalyanaraman: The puzzling case of NDTV investors selling shares below market price.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first studio recording, episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. The richest man in Asia has lately been on a diversification spree. From petrochemicals, renewable energy to ports, airports and even retail now. The Adani group has ventured into an astounding array of sectors. In office,

August this year, he made more headway into yet another sector, the media. Adani Enterprises told the stock exchanges that it was going to indirectly buy a 29% stake in NDTV. It was what they called a hostile takeover. The news took everyone by surprise, including NDTV promoters, Prona and Ratika Roy. But wait, you've probably heard that story already. And here is where it gets interested. Apart from the 29% stake that Adani bought, Adani also said that it would make an open offer to buy an additional 26% from public shareholders of NDTV.

And last month, Sebi approved that offer. But Adani still had to stick to Sebi's pricing rules. And according to the rules, Adani's open offer price for each share of NDTV was $294. But the thing is, NDTV stocks have been trading at a much higher value on the stock exchange. And yet, over 53 lakh NDTV shares were tendered in Adani's open offer, which ended yesterday. Why would anyone sell something that can say sell for 15 rupees for just 10 rupees? Welcome to Daybreak by the Ken, a podcast where we pull up the curtains on the most significant stories from India at the intersection of business. and technology.

I'm a host Snigda and today is Tuesday the 6th of December. My colleague Anand Kalyan Aramun has been following the NDTV Adani's story for a while now and he has written about it twice in his weekly newsletter, Kuching, which by the way, I highly recommend you sign up for. Anand and Arundati Ramanathan, my other colleague, who is the deputy editor at the Ken, write Kuching every Thursday where they tell you about how finance is getting super-chart. by tech in India and how you can make money work for you. You'll find the sign-up link to Kaching in the show notes of this episode.

So about NDTV. First of all, how did it even land up in the hands of Adani enterprises? In August, just half an hour before Adani made the announcement about acquiring a 29% stake in NDTV, it made another filing with the stock exchange. It said that AMG Media Networks, which is a wholly owned subsidiary of A Dani, had acquired 100% of VCPL. Now, you may not have heard of VCPL or Vishw Pradhan Commercial Private Limited, but it plays a crucial role in this entire saga. It all began in 2009 when Radica and Pranai Roy took a corporate loan of $404.4 crore rupees from VCPL. They approached VCPL through their promoter company called RRPR Holdings Private Limited,

which owned a 29% stake in NDTV. And there was a catch. VCPL had lent RRPR the loan amount in exchange for warrants to acquire close to 100% of RRPR, which basically meant that VCPL could acquire a 29% stake in NDTV in return for the loan. that it had given. Now, fast forward to August this year, Adani Enterprises declared that it was exercising VCPL's right to take over RRPR's NDTV stake. Many were left stunned, including NDTV itself. In a statement, it said that the move was executed without any input from, conversation with, or consent of its founders. And that was because Adani's stake purchase was an indirect

one. But wait, 29% is not controlling interest, right? Remember what I told you about Sebi? In November this year, Sebi gave its approval to Adani's offer to buy another 26% from NDTV's public shareholders. Add that up, 29 plus 26, that is a 55% stake in total. Now, you would think that that meant that Adani would eventually own a majority. majority stake in NDTV, right? But the path to Adani gaining a strong hold in Indian media was not so easy.

Or at least so one would have thought. Hi, I'm Sneha Vakaria, host of another podcast by the Ken called Cost to Company. CTC is a weekly listener-driven podcast about work and workplaces where we unpack the newest, strangest phenomenon happening in our offices and careers. This week's episode, we interview three

young, ambitious men who have exited the crypto industry. We unpack why they worked in crypto, what they found there, and why in spite of mounting evidence, otherwise they continue to believe. Tune in this Tuesday on Spotify, Apple Music or wherever you hear your podcasts, hear what's happening in your workplace before you hear it on Slack. Let us look a bit carefully at Adani's offer to buy an online. additional 26% stake from NDTV's public shareholders. Sebi had approved it, but Adani still had to stick by Sebi's pricing rules.

And according to these rules, Adani's open offer price for each share of NDTV limited had to be a minimum of $294. Adani could have offered more, but it decided to stick to $294. But by then, NDTV stock prices had already. ready tripled since the beginning of this year and quadrupled over the last year. Around the time that the open offer was announced, the stock price of an NDTV share was nearly 365 rupees. Now, it is possible that some anticipated something big was brewing with NDTV and that is what led to the share prices skyrocketing. After all, being an Adani stock

does have its perks. And throughout the period of the open offer from November 22nd to 15, of December, NDTV stocks traded at much higher than the open offer price. But the main question that we want to ask here is, what were the chances of NDTV's public shareholders selling their stocks to Adani enterprises at a lower price? You would think that the chances were pretty low, right? Because like I mentioned earlier, why would anyone sell something for 10 rupees when they can sell it for 15 rupees. So, did that mean that the open offer was likely to fail? Actually, going by what has been happening over the last few days, maybe not. More than 53

lakh in the TV shares were tendered in the open offer until 5th of December, which is yesterday, the last day of the open offer. That makes nearly 32% of the open offer size of over 1.6 share shares. Why did public shareholders of NDTV tender their shares for a lower price? And here comes the next twist in the story. Anand did some digging into the shareholding pattern of NDTV. He went through the data from the National Stock Exchange's website that gives a breakup of the investor categories that have tendered shares. Turns out, corporates and individuals are the two big categories that tendered their NDTV shares. But with individuals, it is a little hard to find their identity.

Among the corporates, there were four Kolkata and Odisha-based companies that together held about 7% of shares of NDTV. That adds up to roughly 46 lakh shares. At this point, I want you to remember what I said earlier. 53 lakh shares of NDTV have already been tendered in the open offer that close. closed yesterday. There was one more category in the shareholding pattern of NDTV that Anand looked at. Institutions. And that brings us to yet another twist in the story. The two biggest shareholders in this category as of September 2022 were, number one, LTS investment fund with about

63 lakh shares and number two, Vikasa India EIFI fund with a little more than 20. 8-lac shares. But in the open offer, less than 7-lac shares have come from institutions. Based on this, it seems that these two investors did not tend their shares, or at least not completely. When Anand found the names of these two institution shareholders of NDTV, one of the names kind of rang a bell. LTS Investment Fund Limited. The foreign portfolio investor had appeared in another story that Anand had written in the again in April 2021. The story was on Adani Total Gas.

Turns out, LTS investment fund holds stakes in many Adani companies. In fact, nearly 98% of LTS's corpus is in Adani stocks. And hold your breath for this one. LTS also held a 9.8% stake in NDTV since at least September. 2016. This was one of the very few non-adani companies that LTS actually held. Now, if you put two and two together, there was a chance that LTS would have tendered all its NDTV shares in the open offer. If that had happened, their Adani group shareholding in NDTV would have gone up to nearly 39%. Plus, VCPL had already got about 8.25% of NDTV shares in the open office.

29 plus 10 plus 8, that adds up to about 47%. Adani Enterprises would have been a hop-skip and a jump away from being a majority stakeholder in NDTV. They would have comfortably owned more than the combined 32% shareholdings that Radica Roy and Pranai Roy still hold in their individual capacities as NDTV promoters. But turns out, LTS does not. seem to have tendered its shares, at least not fully, until the end of the open offer. Even so, Adani's stake in NDTV now is about 37%, which is higher than the Roy's 32%.

And even if LTS did not sell all its NDTV shares to the Adani's, their Adani groups' influence in the company's decisions could still increase. All LTS will need to do is support Adani in company resolutions. won't it? That is a million dollar question. And finally, of all the twists in the tale, the most mysterious question. Why would someone sell their shares at 294 rupees when the market price was way higher? What is making shareholders so altruistic? Is there more to it than meets the eye?

A corporate finance expert from Delhi, who did not want to be named, told Anand about an occasional industry practice. It is called warehousing. It is when acquirers quote unquote warehouse the target company shares with friendly bodies. And this practice is not unheard of. When the need arises, these warehouse shares are given back to the acquirers. In such an arrangement, the price of the stock does not really matter. But again, the story is still quite murky and to know the complete

picture, we will have to wait until December when the quarter's filings are released. Daybreak is produced from the Newsroom of the Ken in India's first subscriber-focused business news platform. Each episode distills years of reportage, narratives and stories from the Ken's experienced journalists and editors. What you're listening to is merely a small slice of our subscriber-only offerings. A full subscription unlocks daily long-form features. stories, newsletters, subscriber-only apps and podcast extras. Head over to the ken.com slash podcast offer to experience us like a subscriber. I am Snigda, your host and today's episode was edited by my colleague, Rajiv Sien.

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