Vice Presidents: Chirag Agarwal, Devansh Jain, Deepansh Kalra
Analysts: Kshirja Gambhir, Nidhi Singh, Amal Tharik, Riya Salunkhe
Deal Overview
Acquirer: Adani Group
Acquiree: NDTV
Deal Size: INR 11000 million
Buy Side Advisors: ICICI Securities, Citi
Sell Side Advisors: Kotak Investment Banking, Avendus Capital
Introduction
The recent acquisition of NDTV by the Adani Group marks a significant development in India’s media and corporate landscapes. NDTV, one of India's leading news broadcasters known for its journalistic integrity and wide-reaching influence, has now come under the ownership of the Adani conglomerate, a major player in diverse sectors ranging from energy to infrastructure.
The Adani Group's takeover of NDTV was a complex process with several twists and turns. Here's a more detailed breakdown of the key events:
August 2022:
Indirect Stake Acquisition: Adani Group stuns the media industry by acquiring a 29.18% stake in NDTV through a company called Vishvapradhan Commercial Private Limited (VCPL). VCPL, in turn, held a majority stake in RRPR Holding, a promoter group entity of NDTV founded by Prannoy Roy and Radhika Roy. This move was crucial, giving Adani a significant foothold in NDTV without directly approaching the founders.
Roy Family's Response: The Roy family contests this acquisition, claiming it arose from loans they took from VCPL years ago. They argue that VCPL's right to convert the loan into equity had expired. A legal battle ensues.
Open Offer Launched: Despite the ongoing legal dispute, Adani Group launched an open offer to acquire an additional 26% stake in NDTV directly from public shareholders at a price above the current market price.
September 2022:
Open Offer Results: The open offer closes, but the public responds lukewarm. Adani Group managed to acquire only an additional 8.26% stake, bringing their total holding to 37.44%. This exceeds the Roy family's remaining stake of 32.26%.
December 2022:
Founders' Stake Acquisition: In a surprising move, Adani Enterprises enters into a block deal with the Roy family on the National Stock Exchange. They acquire the remaining 27.26% stake held by the founders, effectively giving them control of NDTV. This purchase is made at a premium price of Rs 342.65 per share, which was 16.5% higher than the open offer price.
Adani Becomes Majority Shareholder: With the acquisition of the founders' stake, Adani Group's total holding in NDTV reaches 64.71%, making it the news company’s majority shareholder.
In a hostile takeover, the acquiring company bypasses traditional negotiation channels and directly approaches the target company’s shareholders with an acquisition offer.
These takeovers are often perceived as aggressive and contentious, as they can involve tactics such as tender offers, proxy fights, or hostile bids to gain control of the target company against the wishes of its leadership. Hostile takeovers typically occur when the acquiring company believes that acquiring the target company would be strategically beneficial, but the target company's management is resistant to the idea.
Hostile M&A takeovers can lead to heightened tensions between the acquiring and target companies and uncertainty for employees, customers, and shareholders of both entities. Depending on the tactics employed and the jurisdiction in which the companies operate, they may also result in legal battles and regulatory scrutiny.
Adani Group Overview
The Adani Group is a prominent Indian industrial conglomerate encompassing multiple businesses across seven publicly traded companies. Headquartered in Ahmedabad, Gujarat, the Adani Group is recognized for its robust transport and utilities infrastructure, contributing significantly to the regions where it operates. The Adani Group holds a 74.97% equity stake in Adani Power Limited.
Subscript: [1. NQXT: North Queensland Export Terminal | 2. ATGL: Adani Total Gas Ltd, JV with Total Energies | 3. Data center, JV with EdgeConnex, AEL: Adani Enterprises Limited; APSEZ: Adani Ports and Special Economic Zone Limited; ATL: Adani Transmission Limited; T&D: Transmission & Distribution; APL: Adani Power Limited; AGEL: Adani Green Energy Limited; AAHL: Adani Airport Holdings Limited; ARTL: Adani Roads Transport Limited; ANIL: Adani New Industries Limited; AWL: Adani Wilmar Limited; ADL: Adani Digital Limited; IPP: Independent Power Producer 4. Cement business includes 63.15% stake in Ambuja Cement which in turn owns 50.05% in ACC Limited. Adani directly owns 6.64% stake in ACC Limited]
Founded in 1988 by Gautam Adani, it has grown into a diversified business empire with a presence across various sectors. Here's a breakdown of the Adani Group:
Business Sectors:
Energy & Utilities: This is a core area for Adani, encompassing renewable power generation (solar and wind), power transmission and distribution, thermal power, and gas distribution. They are India's largest player in solar power generation.
Transport & Logistics: The group operates ports and terminals (including India's largest private port), airports, and is involved in developing road and metro networks.
Mining & Resources: Adani deals in coal mining and trading, which contributes significantly to their revenue but also faces criticism for environmental impact.
Agribusiness: This arm focuses on trading and logistics related to agricultural commodities.
Other Ventures: The Adani Group has also ventured into data centers, defense and aerospace, and
food processing.
The EBITDA of the Adani-listed portfolio for FY2023 grew by 36% Year over Year to INR 57,219 cr, with Core Infrastructure EBITDA growing by 23% Year over Year to INR 47,386 cr (~83% of the Portfolio).
NDTV Overview
NDTV, a household name in India for over 30 years, is synonymous with independent news broadcasting. Founded in 1984 by the husband-and-wife team of Prannoy Roy and Radhika Roy, NDTV played a pioneering role in establishing private news production in India. Their channels, NDTV 24x7 (English) and NDTV India (Hindi), offer a diverse range of news programming, from live reporting and investigative journalism to talk shows and in-depth analysis of national and international affairs. NDTV maintains a strong digital presence with a user-friendly website and active social media channels and has earned a reputation for credible and independent journalism, receiving prestigious awards like the Ramnath Goenka Excellence in Journalism Awards. However, navigating the balance between journalistic freedom and the influence of their new owner, the Adani Group, will be a key challenge as NDTV continues to operate its channels and website.
NDTV maintains a robust social media presence across Twitter, YouTube, Facebook, LinkedIn, Instagram, Snapchat, and Koo. This focus translates to impressive results. They hold the top spot for the most-followed Indian English news channel on Twitter and YouTube, and rank among the most-followed on Facebook. Furthermore, social media is a significant driver for NDTV, generating 80% of their video views and contributing over half of their digital video revenue. Beyond just broadcasting, social media fosters two-way communication with viewers, serving as a valuable source of story ideas and audience engagement. This targeted approach also allows NDTV to connect with younger demographics.
Industry Analysis
The Indian entertainment and media (E&M) industry has outperformed the Indian economy and is one of the fastest-growing sectors in India. The E&M industry generally tends to grow faster when the economy is expanding. The Indian economy has been growing at a fast clip over the last few years, and the income levels too have been experiencing a high growth rate. Above that, consumer spending is also on the rise, due to a sustained increase in disposable incomes, brought about by a reduction in personal income tax over the last decade. All these factors have given an impetus to the E&M industry and are likely to contribute to the growth of this industry in the future. The Indian E&M (Entertainment & Media) industry is valued at approximately $12 billion and is projected to reach $100 billion by 2030. The sector has played a vital role in India's economic growth and development over the past few decades. The telecommunication sector is instrumental in the development and reduction of poverty through the empowerment of the masses, unlocking economic growth and employment generation, bringing in FDI, and digital transformation of essential services like education, healthcare, financial services, etc.
The widespread adoption of smartphones has transformed how consumers engage with entertainment content. Mobile apps for streaming music, watching videos, gaming, and social networking have become integral parts of the digital entertainment ecosystem. These apps offer personalized experiences and convenience, allowing users to consume content on the go. The Indian market has seen the emergence of homegrown mobile entertainment apps, competing with global players for market share and user engagement.
Traditional news organizations such as newspapers and news channels continue to command a significant audience share, while digital news platforms are gaining traction among tech-savvy consumers, particularly the younger demographic.
The advent of digital technology has disrupted traditional news consumption patterns, leading to the emergence of digital news platforms and online journalism. Digital news portals, mobile apps, and social media platforms have become primary sources of news for millions of Indians, offering real-time updates, multimedia content, and interactive features. This shift towards digital news consumption is driven by factors such as convenience, accessibility, and the ability to personalize content according to individual preferences.
The news industry faces several challenges, including misinformation, content credibility, and monetization in the digital age. The proliferation of social media and messaging apps has facilitated the spread of misinformation and fake news, posing challenges to traditional journalistic standards and ethics. News organizations are grappling with the need to verify information, combat misinformation, and rebuild trust with their audience.
Press freedom and media independence are essential pillars of a vibrant democracy. However, the Indian news industry operates within a regulatory framework that includes laws governing media ownership, content censorship, and defamation. Regulatory bodies such as the Press Council of India and the News Broadcasting Standards Authority (NBSA) oversee compliance with journalistic standards and ethics. While regulatory oversight is necessary to uphold media integrity and accountability, concerns have been raised about the potential impact on press freedom and editorial independence.
In summary, the news industry in India is undergoing a period of profound transformation driven by digital disruption, technological innovation, and evolving audience expectations. While the industry faces challenges such as misinformation and regulatory constraints, it also presents significant opportunities for journalism innovation, collaboration, and public service. As news organizations navigate this dynamic landscape, adapting to digital trends, upholding journalistic principles, and fostering trust with their audience will be paramount to sustaining relevance and impact in the digital age.
Financial Analysis
Comparable Company Analysis of NDTV
Companies Compared
NDTV
TV Today Network
Entertainment Network (Ent Network)
Zee Media
TV 18 Network
Metrics Compared
Market Data: Share price, Equity value, Net Debt, Enterprise Value
Financials: Sales, EBITDA, Net Profit, EPS
Valuations: EV/Revenue, EV/EBITDA, P/E, EV/EBIT
Here are some key observations from the model:
Market Data: NDTV has the Third highest share price (₹228.55) but the low market capitalization (₹1474.15 Cr) among the companies listed. This suggests that NDTV's stock is trading at a higher price-to-earnings ratio (P/E) than its peers.
Financials: NDTV has negative revenue and negative net profit, while the other companies have positive revenue and net profit. NDTV also has the highest EBITDA margin (14.99%) but the low net profit margin (-7.15%) among the companies listed.
Valuations: NDTV has the highest P/E (53.47x) and EV/EBITDA (36.15x) ratios, which again suggests that its stock is trading at a premium relative to its peers. However, NDTV also has the lowest EV/Revenue ratio (3.82x).
Overall, the comparable company analysis suggests that NDTV's stock may be overvalued relative to its peers based on its negative earnings and high valuation ratios. However, it is important to note that there may be other factors that could explain these differences, such as NDTV's brand name, content library, or future growth prospects.
Based on the analysis, the estimated equity value per share for NDTV was 193 using the EBITDA method and 147 using the perpetuity method, indicating that NDTV was overvalued. As of April 1, 2022, the share was trading at 223. This suggests that the price paid per share was indeed higher than its value, and Adani overpaid for NDTV. Additionally, Adani paid a 17% premium for the shares. Despite NDTV's history of government bans and a somewhat questionable market reputation, the premium was deemed justifiable given the hostile takeover's aim to control media dynamics.
FOR A DEEPER UNDERSTANDING OF THE DCF MODEL-
Deal Rationale
Hostile Takeover
The Adani Group's acquisition of a 29.18% stake in NDTV is being viewed as a hostile takeover attempt. Hostile takeovers, where a company acquires another without the target company's consent, are not uncommon in the Indian corporate landscape. Past examples include India Cements' acquisition of Raasi Cements in 1998. The most recent high-profile case of a hostile takeover was Elon Musk's contentious acquisition of Twitter.
Synergies in the Adani-NDTV Deal
Despite the controversial nature of the takeover, the Adani Group's acquisition of NDTV presents several potential synergies that could benefit both companies and the broader Indian media landscape.
Revenue Synergies
Financial Stability and Investment: The Adani Group's deep pockets and strong track record of successful investments can provide much-needed financial resources for NDTV. This will enable NDTV to invest in new technology, talent, and content development, helping it maintain its competitive edge.
Expansion into New Markets: With the backing of the Adani Group's global footprint and connections, NDTV can look to expand its presence in new domestic and international markets, increasing its brand recognition and influence.
Diversification of Revenue Streams: The Adani Group's resources can support NDTV's foray into new content formats and platforms, such as digital streaming, podcasts, and virtual reality experiences. This diversification will allow NDTV to cater to evolving audience preferences and ensure its continued relevance.
Cost Synergies
Synergy in Operations: The Adani Group's diverse business interests can provide NDTV with exclusive stories and insights, especially in the business news segment. Additionally, the Group's extensive geographical presence can strengthen NDTV's newsgathering capabilities across India.
Brand Synergy and Cross-Promotion: Leveraging NDTV's reach and reputation can enhance brand awareness and customer loyalty across the Adani Group's diverse ventures, leading to increased customer engagement and potential revenue streams.
Content Creation and Distribution: NDTV's expertise in content creation and the Adani Group's digital infrastructure capabilities can create a powerful platform for capturing the burgeoning demand for streaming content.
Beyond Synergy: The Deeper Play
While the stated synergies are compelling, some analysts suggest that Adani's ambitions may extend beyond mere financial gains. The media and entertainment (M&E) sector plays a crucial role in shaping public opinion and narrative control. Owning a prominent news channel like NDTV could potentially provide Adani with:
Enhanced voice and influence in public discourse, allowing it to amplify its message and potentially influence policy decisions.
A strategic move to neutralize or counter any public criticism of Adani's projects or practices.
Part of a larger vision to create a diversified media conglomerate, further amplifying Adani's reach and influence.
Accretion/Dilution Analysis
The analysis shows an initial dilutive effect on the pro forma earnings per share (EPS) due to the relatively higher number of outstanding shares of Adani Enterprises. Despite the strong growth in Adani's business, the addition of NDTV's relatively small net income will reduce the combined EPS compared to Adani's standalone EPS.
Risks
Regulatory Hurdles
The proposed merger between the Adani group and NDTV has hit a potential roadblock due to regulatory restrictions imposed on the founders of NDTV, Mr. Prannoy Roy and Mrs. Radhika Roy. The Securities and Exchange Board of India (SEBI) has barred the Roys from accessing the securities market and dealing in securities for a period of two years, stemming from a case of suspected insider trading of NDTV shares in 2020. This restriction could create regulatory hurdles for the Adani group in completing the acquisition of NDTV, as the founders are restricted parties.
Disagreement and Integration Challenges
The disagreement between the parties and the regulatory restrictions on the NDTV founders could make the integration of NDTV into the Adani group more challenging. Effective integration would be crucial to realize the strategic benefits of the acquisition. NDTV has stated that certain regulatory restrictions on its founders prohibit them from transferring shares to Adani. However, the Adani group has refuted this position, claiming that NDTV is legally bound to immediately transfer the shares and that the Roys' entity is not subject to the market regulator's trading restriction on the Roys themselves.
Media Independence Concerns
Regardless of whether the takeover is considered hostile or not, it is undoubtedly strategic for the Adani group. Many have raised concerns over the potential threat to the independence of the media house, which is popularly known for its leftist outlook. However, it is worth noting that today, there is hardly any large media house that is not owned by businesses. Notably, Mukesh Ambani already has a sizable presence in the media industry through Network18, which runs a number of channels, including the news channel CNN-News18 and the business channel CNBC-TV18.
Conclusion
The Adani Group's acquisition of NDTV marks a significant event that consolidates corporate power and influence in India's media industry. While the hostile takeover process was contentious, the deal presents potential synergies - the Adani Group's resources could provide NDTV with financial stability, expansion opportunities, and avenues for diversifying revenue streams. Meanwhile, Adani gains access to NDTV's established brand, reach, and journalistic expertise.
However, the acquisition raises concerns regarding media independence and the ability to safeguard editorial decisions from corporate interests. Regulatory restrictions on NDTV's founders and potential integration challenges due to disagreements pose risks to seamlessly executing the deal.
As India's media landscape continues evolving, especially with digital disruptions, the Adani-NDTV merger exemplifies key challenges traditional news organizations face. Navigating this path will require balancing financial viability, adapting to changing audience demands, and upholding journalistic integrity and press freedom - foundational pillars in a robust democracy. How the new owners approach this balance will have far-reaching implications for NDTV's future and India's media environment.
References
connect.adani.com. (n.d.). THE FACE OF RESILIENCE. [online] Available at: https://connect.adani.com/2023/apr2023/
ijalr. (n.d.). ANTI-TAKEOVER CODE IN INDIA: A NEED OF THE HOUR? - Shreya Mittal. [online] Available at: https://ijalr.in/volume-4-issue-1/anti-takeover-code-in-india-a-need-of-the- hour-shreya-mittal/
Livemint (2022). How Adani Group acquired NDTV: Explained. [online] mint. Available at: https://www.livemint.com/industry/media/how-adani-group-acquired-ndtv-explained- 11669779605088.html
MUMBAI SILICON VALLEY BANGALORE SINGAPORE NEW DELHI MUNICH / AMSTERDAM NEW YORK GIFT CIT Y M&A Lab. (2023). Available at: https://nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/M&A_Lab_Adanis- Hostile-Takeover-of-NDTV.pdf.
The opinions expressed in the reports are those of the members of the Junior IB team and are not affiliated with any university or institution. The financial recommendations provided are for educational purposes only and the Junior IB team takes no responsibility for any losses that may occur from implementing any ideas presented in the reports. The Junior IB team is not authorized to provide investment advice. The information, opinions, and estimates presented in the reports reflect the Junior IB team's judgment at the time of publication and are subject to change without notice. The price, value, and income of any securities or financial instruments mentioned in the reports may fluctuate. The Junior IB team has no business relationship with any of the companies mentioned in the reports and does not receive any compensation for their inclusion.
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