The deft legal manoeuvre that helped Adani cement NDTV majority stake

The sweetener offered by billionaire Gautam Adani’s conglomerate to the once-defiant founders of New Delhi Television Ltd. could test India’s takeover regulations that require all shareholders to be paid the same price by an acquirer.

Founders Prannoy Roy and Radhika Roy will sell 27.26 per cent of their equity in NDTV to Adani-controlled RRPR Holding Pvt. at as much as Rs460.53 per share, according to a filing on Friday. If the Roys do receive this price, it would be a 57 per cent mark up to what minority shareholders received in an open offer that closed December 5.

Regulations require that all exiting shareholders should be paid the same price. However, since the Adani-Roy share transfer will be through vehicles linked to the company’s owners, it is exempt from the takeover rules and is allowed to pay the premium. Adani Group can start buying the Roys’ shares on or after December 30 to boost their stake in NDTV to 64.7 per cent.

While the deft legal move shows the ingenuity of the tycoon and his dealmakers in clinching acquisitions - Adani’s entry into NDTV four months ago was also via an indirect route - it could invoke the regulator’s scrutiny on grounds that it is unfair to common shareholders.

An Adani spokesperson declined to comment on the price the Roys will be paid. The Roys didn’t respond to an emailed query.

Whether or not a potentially higher payout to the Roys triggers scrutiny by India’s market regulator, the deal spotlights the risk appetite and aggression of Asia’s richest person as he rapidly expands his empire from ports and power plants to airports, cement, data centers and media.

Adani told the Financial Times in a November interview that he wants to make NDTV into a global media powerhouse.

Adani is relying on two technicalities in India’s market regulations to stitch this deal, according to Rajat Sethi, partner at law firm S&R Associates.

First, the transaction is a so-called inter-se transfer - share sale between entities linked to NDTV’s owners - that allows paying a premium to the current market price. Adani meets this condition only because he’s using RRPR Holding - an existing NDTV holding company - to purchase the Roys’ shares.

RRPR’s ownership changed to an Adani Group firm recently but that doesn’t alter anything since the Indian regulation doesn’t consider changes at the holding company level, Sethi said.

18-day gap

The second technicality is that Roys’ share sale to Adani was announced 18 days after the close of the open offer that was priced much lower. If the deal was negotiated between the Adani Group and Roys after the open offer closed, then the local takeover code’s requirements won’t bite.

“If the agreement with the Roys at a higher price had been in existence earlier, the position would have been different,” Sethi said.

Yet, India’s takeover law also mandates that all exiting shareholders should be paid the same price if they are selling to the acquirer within 26 weeks of the open offer ending.

That will come up against the exemption Adani’s deal enjoys depending on what it pays the Roys for the sale.