💎 The power-play for control of India's media

Welcome to this week's edition of Three Point Five. A lot has been said and written about the takeover of NDTV by the Adani group — in today's newsletter, let's take a look at what lies ahead for the legacy media industry through the lens of the Adani-NDTV saga and how it seems to replicate global and Indian market trends.

Key Takeaways :

1. Due to the global market slowdown and the VC funding winter, more and more companies will opt for alternative ways of raising funds

2. Conflicted, complicated, and drawn-out resolutions like the Adani group takeover may become more frequent as companies opt for different ways to raise capital

3. Although legacy media is losing its strong foothold, the prospects remain good. Hence, most billionaires and industrialists covet media companies in their portfolios

4. The media sector will be one of the most exciting industries to monitor. The industry is undergoing massive changes due to the rise of social media and platforms that disseminate content and news

5. The Adani groups' meteoric rise is because of unprecedented tactical moves. The group's portfolio companies have grown tremendously in size and performance in the last 2 years

How did the Adani group execute the hostile takeover of NDTV?

In 2005, Radhika Roy and Prannoy Roy, the founders of NDTV, formed the promoter company of NDTV — RRPR Holdings Private Limited.

More than a decade ago, this company took an interest-free loan of Rs 403.5 CR from VCPL (Vishvapradhan Commercial Private Limited) with a caveat that this debt could be converted into controlling equity upon non-repayment.

In 2022, the Adani group acquired VCPL and exercised the option to convert unpaid debt into a 29.18% stake in NDTV — thus, becoming shareholders in NDTV.

Then as per Indian regulations, Adani Group's indirect control of a stake above 25% necessitated that it put forward an open offer to purchase at least 26% more from existing shareholders in NDTV to allow them to exit.

These actions piled up pressure on investors and the Roys. Since they had already lost their majority holding in NDTV, they sold most of their shares. This gave the Adani group a 64% majority controlling stake in NDTV.

In 2019, a similar hostile takeover took place when L&T acquired Mindtree. Way before that, in 2000, real estate firm GESCO took the help of Mahindra and Mahindra to prevent a hostile bid by Dalmia Group.

The rise and rise of the Adani group

With industrialist Gautam Adani at the helm, the Adani group is in a phase of unprecedented expansion. Over the past few years, the group has expanded its business empire from ports and coal to a portfolio that now includes green-energy solutions, airports, cement production plants, strategic data centres, and metals.

This latest acquisition of NDTV has secured the group's entry into India's media and entertainment industry.

The stock prices of companies in the Adani group have seen massive spikes in the past 2 years.

The power-play to own the media

In the past few years, we have seen a keen interest from billionaires and industrialists to own news and media companies.

In the past, the acquisition of news and entertainment companies has been seen as a move to control the media narrative. With mounting losses and operational inefficiencies, traditional news and media companies have become vulnerable to being acquired by billionaires and large business houses.

While controlling the media narrative is one aspect, the answer also lies in the future of the media.

Digital media, in all of its various forms, is what consumes us currently. In today's world, content is everything — consumers are the products, and everyone vies for their limited attention. In such an environment, platforms with trusted brand names and legacy have an added advantage.

Lessons from the Adani-NDTV saga

This hostile takeover is a tale of caution for companies like NDTV that take on significant debt they can't service.

The Adani group coincidentally is a shining example of how to expand and diversify on the back of internal debt and transactions.

However, the risks increase as the market leans towards debt-driven securities like loans with the option to convert to equity on later dates. The learning from this saga is explicit — borrowings must be cautious and realistic.

P.S. - With the focus on content and now artificial intelligence, the media & entertainment industry is one to watch out for.