scorecardresearchAdani-NDTV Saga: What is a hostile takeover? A comprehensive explainer

Adani-NDTV Saga: What is a hostile takeover? A comprehensive explainer

Updated: 24 Aug 2022, 12:37 PM IST

Soon after the Adani Group announced its acquisition, NDTV released a statement to make it clear that this choice was made independently of the media outlet and its founder-promoters.

When a firm attempts to acquire another without the consent or cooperation of the target company's management, this is known as a hostile takeover.

When a firm attempts to acquire another without the consent or cooperation of the target company's management, this is known as a hostile takeover.

In an effort to increase media investments as part of an ambitious expansion plan, Adani Group, led by the wealthiest Indian, Gautam Adani, announced on Tuesday that it would purchase a majority stake in New Delhi Television Ltd, one of the country's most watched news channels.

Shares of NDTV Ltd jumped 5 per cent to hit their highest trading permissible limit for the day on Wednesday after Adani group launched a bid to take over the media company.

But wait, that’s not all.

Soon after this announcement, NDTV issued a statement clarifying that this decision was taken without any consideration from the media house or its founder-promoters.

Yes, you heard it right!

RRPR Holding Private Limited (RRPRH), the promoter-owned company that owns 29.18% of NDTV, received a notice from Vishvapradhan Commercial Private Limited (VCPL) informing them that VCPL has exercised its right to acquire 99.50% ownership of RRPR Holding Private Limited (RRPRH).

Now, you might be wondering, how is this possible?

If the owners do not want to sell their company, how can someone buy it?

However, it is achievable through a process called a hostile takeover.

What is Hostile Takeover?

A corporation can be bought by another company through a hostile takeover. The firm that is being purchased is referred to as the target firm, and the firm that is buying the target firm is referred to as the acquirer. The main trait of hostile takeovers is that the target company's management will not want the acquisition arrangement to go through.

Hostile takeover bids occur when an organization tries to take over a business without getting the target company's management's permission or cooperation. Instead of requesting permission from the target company's board of directors, the acquirer will attempt to take control of the business by making a tender offer, organizing a proxy battle, or buying the necessary number of target company shares in the open market.

Still confused?

Okay, imagine this.

What happens in a conventional acquisition?

The boards of directors of the target company would approve the agreement reached by the two businesses. Agreed?

However, if the target firm's management is not open to a sale, the purchasing business would approach the shareholders directly, typically with a tender offer, or an offer to buy shares at a premium.

The hostile takeover is successful after they have acquired enough shares to hold a majority stake in the business.

There are two ways for the acquirer to implement a hostile takeover.

Tender offer

When a hostile bidder makes a direct offer to shareholders to buy their shares for a higher price than the stock's existing market value, they are said to be making a tender offer. Each shareholder makes their own decision on the sale of their stock in the company. The bidder wants to purchase enough shares to hold a majority ownership in the business.

Proxy fight

A proxy fight, also known as a proxy contest, occurs when a hostile bidder tries to remove board members from the target company. The objective is to fill the board with enough supporters of the sale. However, proxy battles are less likely to be successful since it is challenging to remove board members because shareholders frequently support the company's management.

Coming back to the heating news that’s all over the place.

How did Adani group manage to takeover the NDTV company?

First, the Adani Group corporation purchased a business (VCPL) that had previously been connected to rival tycoon Mukesh Ambani. In the case of NDTV, the promoter (RRPR holding) obtained a loan from VCPL in 2009 for Rs. 400 crore to pay off an existing loan and the Adani group company has now exercised the option to convert that debt into a 29.18% ownership in the news channel business. Following that, it has also announced an open offer for additional 26% ownership.

First Published: 24 Aug 2022, 12:35 PM IST