On Tuesday, Adani Enterprises announced that its media unit and two other entities would indirectly buy a 29.18% stake in New Delhi Television Ltd (NDTV). It further said it would launch an open offer for another 26% stake in the media house. Seemingly, the company has made Rs 493-crore open offer for a 26% stake in NDTV at Rs 294 per share.

However, the news has not gone well with the viewers. Since the news channel has claimed that the 29.18% of NDTV has been acquired without “notice, discussion, or consent”, some are even calling it a ‘hostile takeover’. The media house said that the debt was converted into equity without even taking any input from the founders or the company.

Although this is not the first time Asia’s richest man has entered a big venture. Last year, its media arm Adani Media Ventures Ltd (AMVL), acquired the digital business news platform Quintillion Business Media Private Limited (QBM). But, this would be Adani’s most high-profile bet in the media sector. 

Understanding Hostile Takeover

Hostile Takeover basically refers to the acquisition of a company (called target company) by another company (acquirer) against the consent of the former. Under this kind of takeover, the acquirer usually goes through either a tender offer or a proxy fight. The company that initiates a hostile takeover bid approaches the shareholders directly, contrary to seeking approval from the company’s directors. The one who acquires through a hostile bid is called a corporate raider. 

Hostile takeovers may also occur if a company believes that a target is undervalued or when shareholders want changes in a company.

Suppose company ‘X’ submits a bid offer to purchase company ‘Y’. Now, Y has two options- either accept or reject. In case it rejects the offer citing various reasons, option X has to force the deal through various methods, including a proxy vote, a tender offer, or a large stock. Evidently, in Adani Group vs NDTV’s case, the former has gone to acquire the channel by purchasing large stocks. 

A proxy vote is a method which allows acquiring firms to persuade current shareholders to vote out the target company’s management in order to take over easily. On the other hand, a tender offer is an offer to purchase shares from a shareholder of an acquirer’s business at a higher price than the market price.  

 Earlier instances of Hostile Takeover in India 

Hostile Takeover is not something which has emerged just now. There have been various instances of Hostile Takeovers in the past. It first started in the 1980s when London-based NRI Swaraj Paul tried a hostile bid to control the management of two Indian companies, Escorts Limited and Delhi Cloth Mills Limited. He, however, failed in his motives due to fierce opposition. Similarly, in 1997, Asian Paints faced a strong takeover threat from the London-based ICI (Imperial Chemical Industries). This, too, was not successful due to the government’s disapproval.  

In 1998, India Cements took over Raasi Cements when BV Raju sold his 32% stake in Raasi Cements to India Cements. This was the first successful hostile takeover in India. It was followed by many smaller-scale attempts, including ArunBajoriavs Bombay Dyeing, RK Damanivs VST Industries, and Harish Bhasinvs DCM Shriram Industries. 

In 2019, Larsen and Toubro Ltd (L&T) took over Bengaluru-based Company Mindtree Ltd with a 61.08% stake. The former completed buying the 31% additional stake in Mindtree for Rs 4,988.82 crore through an open offer. With this, L&T completely controlled the software company’s board and management.

Hostile Takeover Elsewhere

The history of Hostile Takeover in the United States can be traced back to the 1960s. Posner and DWG are perhaps best known for the hostile takeover of Sharon Steel Corporation in 1969. After this, many small and medium takeovers eventually didn’t work out. 

In 2004, Oracle Corporation announced the acquisition of PeopleSoft for USD 10.3 billion. This was considered an extremely hostile takeover. In fact, PeopleSoft filed a lawsuit alleging that Oracle’s true intentions were to hurt PeopleSoft’s business and disrupt the JD Edwards buyout. 

In 2010, when AOL took over much larger firm TimeWarner, it was considered the ‘deal of the millennium’ at the time. However, the former destroyed its value over time and announced a split later. 

• Preventing a Hostile Takeover 

The target company’s management may resort to preemptive and reactive defences to prevent an unwanted takeover.

• White Knight

A hostile takeover defence mechanism in which a friendly or known company acquires a corporation at fair consideration when the latter is on the verge of being taken over by an unfriendly acquirer, also known as ‘black night’. In 2001, when stockbroker RadhakishenDamani made an open offer for BAT-controlled VST Industries, ITC became a white knight. Similarly, in 2000, GESCO took the help of Mahindra and Mahindra to prevent a hostile bid by Dalmia Group.   

• Differential Voting Rights

Establishing stock with DVRs can prevent such a takeover. Under this, some shares carry greater voting power than others, making it difficult to generate the votes required for a hostile takeover.

• Employee Stock Ownership Program (ESOP)

In the ESOP plan, employees own a substantial interest in the company. Employees may be involved in voting with management, making an aggressive takeover difficult. 

• Crown Jewel

Another defence mechanism in which a provision of the company’s bylaws needs the sale of the most valuable assets in case of a hostile takeover. It is, however, used as a last resort. 

• Poison Pill

Officially termed as a shareholder’s rights plan, it allows existing shareholders to purchase newly issued stock at a discount if one shareholder has bought more than a stipulated percentage of the stock. It results in a dilution of the ownership interest of the acquiring company. The buyer is later excluded from the discount.

• Golden Parachute

It involves granting members of the target company’s executive team benefits such as bonuses, severance pay and stock options if they are ever terminated as a result of a takeover.

• Pac-Man Defence

In this tactic, the target company tries to acquire the company that has made a hostile takeover attempt. 

• Greenmail

Greenmail is a defence in which the target company buys back its own stock from the acquirer at a higher price.

Way Forward for NDTV 

Hostile or not, this takeover is strategic, for sure. Many have raised concerns over the upcoming threat to the independence of the media house, popularly known for its leftist outlook. 

Today, there is hardly any large media house which is not owned by businesses. Notably, MukeshAmbani already has a sizable presence through Network18, which runs a number of channels, including news channel CNN-News18 and business channel CNBC-TV18. 

 It doesn’t require extensive research to understand why wealthy businessmen put efforts into owning media houses. One, it helps them promote their company’s idea and perpetuate its grand image, along with silently suppressing criticism. Two, the business-politics-media nexus is the bitter truth of today. Third, acquiring a media house popularly gaining fame for its quality journalism can’t be a bad deal. NDTV’s shares soared after this unexpected bid. 

Well, what happens after this is yet to be seen. Whether this attempt works out or not, one thing is established: merger and acquisition ideas are coming out of a fidgety hunter mindset these days. When the attempt itself suggests it is hostile, there is hardly any gain, material or immaterial.