The Economics Hub Newsletter: Week 11
Adani Group's NDTV acquisition, Fed Chair Powell's speech, Privacy news and Charts of the week
Happy Sunday!
Welcome to another issue of The Economics Hub Newsletter! I hope you are well.
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Here’s what we cover this week. As per your interest and convenience, please click on the specific topic to jump directly to that section!
Ready? Let’s dive in!
1. The Adani-NDTV saga: Everything you need to know
Gautam Adani, India’s richest and world’s fourth richest person is likely to acquire a majority stake in New Delhi Television (NDTV) in the next few days and this transaction has been the centre of huge attention in the Indian news industry over the last week.
In the left-liberal political space, NDTV is regarded as one of the few independent voices in India's rapidly polarizing media landscape, and the takeover attempt could jeopardise its editorial independence. It has also ignited the debate around the influence of business tycoons and political parties on mainstream Indian journalism.
Through an indirect deal, Gautam Adani’s new media venture AMG Media Networks announced on Tuesday that it had acquired a 29 per cent stake in NDTV and was making an open offer for a further 26 per cent, kicking off a battle for control with NDTV’s founders Radhika and Prannoy Roy.
But what exactly is an “open offer” you ask?
Well, for beginners, an open offer essentially involves a secondary-market transaction where the acquirer presents an offer to the shareholders of the target company inviting them to tender their shares in the target company at a particular price. The primary objective of an open offer is to provide a safe exit option to the shareholders of the target company on account of the change in control or substantial acquisition of shares, occurring in the target company.
According to the Securities and Exchange Board of India (SEBI), the acquirer is “required” to make an open offer to shareholders of the target company, if it has agreed to acquire or acquired control over a target company/shares/voting rights in a target company which would be over the threshold limits.
What are the threshold limits for the acquisition of shares/voting rights, beyond which an “obligation to make an open offer” is triggered? These are:
Acquisition of 25% or more shares or voting rights
Acquisition of more than 5% shares or voting rights in a financial year, given the acquirer already holds 25% or more but less than the maximum permissible non-public shareholding (75%) in a target company.
In layman’s terms, a shareholder in a company has every right to exit an investment if he/she/they believe a massive change in ownership structure could have an impact on the company’s future. The open offer simply enables the shareholder to sell the shares at a predetermined price and exit the investment if he/she/they wish to do so. In this context, Adani had to make an open offer to shareholders due to the potential change in NDTV’s ownership structure from Roys to AMG Media Networks Limited (AMNL).
Rumours of Adani acquiring NDTV have been doing the rounds for close to a year but they were dismissed by the Roys earlier. In September last year, NDTV said in a statement that the company was “not in discussions now, nor has been, with any entity for a change in ownership or a divestment of any sort” and the “founder-promoters, Radhika and Prannoy Roy, who are both journalists, own 61.45 per cent of the company and remain in control of it”.
NDTV sent a similar statement to the stock exchanges on August 22, claiming that the acquisitions talks are nothing but baseless rumours.
However, this doesn’t show the complete picture. To fully comprehend the extent and origins of the current saga, we must go back to 2007.
In 2007, the Roys made an offer to buy back shares from their existing investors. Initially, the plan was to buy a 7.73% stake from another entity GA Global Investments. Promoters may have different reasons for buying back shares, such as if they anticipate that their price will rise, or want to further consolidate their holding in the company. But this immediately triggered the open offer.
They did not have enough money to execute this transaction and thus, they borrowed around ₹500 crores from Indiabulls Financial Services Limited by pledging NDTV shares as collateral.
However, the global financial crisis significantly changed the entire landscape. The value of NDTV shares plummeted, and the collateral backing the loan lost the majority of its value. And when the Indiabulls’ loan payments were due, the promoters took another loan of ₹375 crores from ICICI Bank Limited, to repay Indiabulls Financial Services. The ICICI loan was only one link in the larger chain of borrowing that the Roys were trapped in, which had begun with the India Bulls loan.
Even for the ICICI loan, the Roys pledged all of their shares in NDTV and it also carried a staggering interest rate of 19 per cent! At this point, NDTV/Roys were anything but financially stable. This is when a very strange, mysterious and little-known Indian company: Vishvapradhan Commercial Private Limited (VCPL) comes to NDTV’s rescue.
VCPL was a shell company and has had no assets in its 14 years of existence, apart from some debentures of RRPR (Radhika Roy Prannoy Roy), a promoter entity of NDTV. In 2009, the Roys took a loan of Rs 403.85 crore on behalf of RRPR from VCPL. This was an interest-free loan but in exchange, the agreement gave VCPL the right to convert the loan into 99.99 per cent of RRPR’s equity—effectively, complete ownership.
Those warrants were convertible at any time. This is important and we will get back to this in a moment.
RRPR held a ~29% stake in NDTV and by obliging warrants to VCPL in RRPR, this mysterious company indirectly held a 29% stake in NDTV itself. But to extend this huge loan to RRPR, the VCPL had to have this amount in their cash box.
Did they have this amount of money?
Of course not, it was barely founded in 2008 with no record of any investments or holding valuable assets. The company’s documents revealed it had no assets, businesses or transactions on its books before the NDTV loan. So to extend the loan to RRPR, VCPL itself borrowed Rs 403.85 crore from Shinano Retail Private Limited, a wholly-owned subsidiary of Mukesh Ambani-led Reliance Industries Ltd.
Yes, you can imply that Mukesh Ambani’s Reliance have had considerable influence over RRPR all these years and thus over NDTV as well.
In 2012, however, VCPL’s ownership was shuffled around.
The new owners were Nextwave Televenture Private Limited and Skyblue Buildwell Private Limited, companies linked to Mahendra Nahata, a director at Reliance Jio Infocomm Limited, a subsidiary of Reliance Industries Limited. Interestingly, between 2009 and now, VPCL, indirectly owned by Reliance’s subsidiaries, chose not to exercise their option to convert the loan into equity.
Everything was going without a hitch until this week when Adani went ahead and bought VCPL from its owners, in an all-cash deal worth Rs 113.75 crores, making VCPL a wholly owned subsidiary of AMG Media Networks Limited, which in turn is a wholly-owned subsidiary of Adani Enterprises.
If this wasn’t enough, the Adani Group also announced that they are exercising the right to turn the warrants into shares — effectively and legally enabling them to have full ownership of RRPR. And a 29% stake in NDTV as a consequence. As they said in their statement that the group has:
exercised its right to convert 1,990,000 warrants into 1,990,000 equity shares of RRPR constituting 99.50% of RRPR’s equity share capital, by issuing what is known as a warrant exercise notice on Tuesday.
Do you recall in the beginning when I mentioned, that the acquirer is obliged to make an open offer if it sets to control 25% or more shares in a target company, providing the shareholders with an opportunity to exit the investment due to potential change in ownership structure?
Since Adani Group is now acquiring more than 29% of NDTV, they are mandated to make an offer to buy an additional stake in the company from the other shareholders. The group is offering Rs 294 per share. The NDTV stock closed on Tuesday at Rs 366.20, 2.6 per cent higher than its previous day’s close. At the time of writing this newsletter, it is trading at an insane valuation of Rs 427.70 per share.
This means that Adani Group has made an offer at a discounted price (Rs 294 per share) to the current/trading market price of Rs 427.70 per share, implying that the shareholders may not be incentivized enough to sell their shares to Adani. However, Adani has a secret weapon to counter this problem.
Newslaundry notes that NDTV’s shareholders include two main Foreign Portfolio Investors: LTS Investment Fund, which owns 9.75% of the shares, and Vikasa India EIF I Fund, which owns 4.42 per cent. Interestingly, LTS Investment Fund has invested nearly 98 per cent of its total Indian allocation in four companies of the Adani group. LTS Investment Fund’s ownership in the Adani Group is as follows:
1.69 per cent in Adani Enterprises
1.63 per cent in Adani Transmission
1.27 per cent in Adani Total Gas
1.09 per cent in Adani Power
It is reasonable to assume that Adani could still come to own a sizeable stake by buying out these large institutional holders at a bargain price.
📺 NDTV’s Response
NDTV isn’t backing down either, and it clearly wants to fight back — at least for the time being. Following Tuesday’s takeover, NDTV alleged that the move had come without “notice.” As Suparna Singh, president of the NDTV Group puts it in an internal memo to staff:
This acquisition was made without their (the Roys) consent or without any sort of notice. It rests on a loan agreement dating back to 2009-10.
The memo added the company was "in the process of evaluating next steps, many of which involve regulatory and legal processes," without elaborating further.
But as The Quint reported, it is not legally mandatory for Adani Enterprises to issue a notice if the terms of the loan agreement do not warrant them to do so, although issuing a notice before the acquisition is considered as a good business practice.
“Even if we were to consider that the terms were such that the loan would not get converted (into equity) automatically, the market practice is that a notice has to be given to RRPR, not to its subsidiary NDTV,” Puja Singh, a Principal Associate at corporate law firm Khaitan & Co told The Quint.
As a matter of fact, the terms of the loan agreement were such that VPCL, could convert it into 99.9% of the shares in Radhika Roy-Prannoy Roy Private Limited “at any time during the tenure of the loan or thereafter without requiring any further act or deed on the part of the lender” — as reported by Caravan in 2018. This essentially means that regardless of repayment, VCPL could officially take over RRPR at any time if it wishes to do so.
You might wonder what if the RRPR or the Roys manage to raise some money and repay its loan to VPCL. Is it too late now? Will they be able to retain their ownership/control over RRPR and thus, over NDTV? The industry experts claim that it is not that easy for the Roys as the Adani Group has already acquired VPCL and holds discretionary rights guaranteed by the decade-old warrant, which means that he gets to decide if he wants to take the money or retain equity.
The only possible way through which the founders-promoters can still come to control NDTV is if they somehow manage to make an attractive open offer of their own to shareholders. However, it is quite unlikely that the Roys have this amount of money with them nor it is feasible to raise such amounts in the capital markets, given their damaging reputation in the securities markets due to the ban imposed by SEBI in November 2020 due to inside trading.
As per the November 2020 SEBI order, the Roys have been restrained from "accessing the securities market, and prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with securities market in any manner whatsoever; for 2 years.”
According to M&A and corporate law experts, Adani is well within his legal rights in the acquisition deal so far and the Roys' odds of defeating Adani Enterprises are absolutely minimal. “If you stall for time and make it long enough maybe the raider loses interest and goes away — but they are clearly dealing with someone who wants the brand and the asset,” said Ravi Kumar, partner at IndusLaw and public markets M&A specialist.
🎯 Why does Adani want ownership of NDTV?
The way I see it, the bitter NDTV acquisition by Adani Enterprises is simply a continued endeavour by India’s richest person to influence public opinion through news and media platforms. For instance, in May, Gautam Adani's AMG Media Networks acquired a 49% equity stake in Quintillion Media. Quintillion Business Media runs the news platform Bloomberg Quint, now called BQ Prime.
Even the widely discussed AMG Media Networks (the media arm of Adani Enterprises Ltd) was established just this year in April to foray into businesses of “publishing, advertising, broadcasting, distribution of content over different types of media networks”. Expanding his business empire in the media industry will give India’s richest man a sizeable influence to shape public opinion and restructure the media landscape.
The Adani Group had hired journalist Sanjay Pugalia last September to lead AMG Media Networks. According to Pugalia’s statement:
(Through the NDTV acquisition), AMNL seeks to empower Indian citizens, consumers and those interested in India, with information and knowledge. With its leading position in news and its strong and diverse reach across genres and geographies, NDTV is the most suitable broadcast and digital platform to deliver on our vision. We look forward to strengthening NDTV’s leadership in news delivery.
Sanjay Pugalia also added that the new acquisition is a “significant milestone” in Adani’s goal to “pave the path of new age media across platforms”.
Non-profit news platform The Wire notes that Pugalia’s statement is reminiscent of Mukesh Ambani-led Reliance Industries Limited’s statement in 2014 when the conglomerate acquired Raghav Bahl’s Network 18 Media & Investments Ltd (NW18). This Rs 4,000-crore deal gave then India’s richest person a considerable influence over several television companies such as Colors, CNN-IBN, CNBCTV18 , IBN7, CNBC Awaaz as well as digital media platforms like Moneycontrol, Firstpost, Cricketnext, Homeshop18, Bookmyshow, and so on.
Paranjoy Guha Thakurta in an opinion piece for the Economic and Political Weekly (EPW) observed that RIL’s acquisition move “is a clear loss of heterogeneity in the dissemination of information and opinions.” He envisaged a growing homogenisation and commodification of news; a greater spread of information aligned with corporate interests rather than those of the less influential and underprivileged groups in society. He further anticipated an increase in corporate ownership of media institutions.
I'll leave it to Paranjoy Guha's insightful commentary to wrap up this segment of the newsletter. As he puts it:
Media plurality in a multicultural country like India will diminish. In particular, the space for providing factual information as well as expressing views that are not in favour of (or even against the interests of) India's biggest corporate conglomerate will shrink, not just in the traditional mainstream media (print, television and radio) but in the new media (internet and mobile telephony). There is growing concentration of ownership in the country's already-oligopolistic media markets. In the absence of restrictions on cross-media ownership, these trends will inexorably lead to the continuing privatisation and "commodification" of information instead of making it more of a "public good" that could benefit larger sections of society, in particular the underprivileged.
Eight years later, the richest man in India is set to acquire arguably the only mainstream media institution with "some" media legitimacy left, proving that Paranjoy's anticipated analysis has stood the test of time.
2. Highlights: Federal Reserve Chairman Jerome Powell’s Speech at Jackson Hole
In his much-anticipated annual policy speech at Jackson Hole, Fed Chair Jerome Powell affirmed that the Fed will “use our tools forcefully” to tame inflation that is still running near its highest level in more than 40 years.
You can read the transcript of the speech here.
You can watch the speech here:
He also posed a stark warning about the Fed’s determination to fight inflation with more sharp interest rate hikes: It will likely cause pain for citizens in the form of a weaker economy and job losses. “These are the unfortunate costs of reducing inflation,” Powell acknowledged.
The message landed with a thud on Wall Street, sending the Dow Jones Industrial Average down more than 1,000 points for the day. The S&P 500 closed down 3.4% on the day, hitting its lowest level since late July. The Nasdaq Composite Index also extended losses, shedding 4%. Overall, U.S. equities shed around $1.25 trillion in a single session.
Even the crypto market took a sharp hit as bitcoin (BTC) dipped 4.3% to $20.60K, the lowest level since mid-July, and ether (ETH) fell 9.2% to $1.54K. Overall, the global crypto market cap dipped below $1T, standing at $954.1B at the time of writing, according to CoinMarketCap data.
Here are the highlights of the speech:
Fed’s main focus: “The Federal Open Market Committee's (FOMC) overarching focus right now is to bring inflation back down to our 2 per cent goal. Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy. Without price stability, the economy does not work for anyone.”
Pain to Households and Businesses: “Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation.”
Fed’s judgement of the current status of the economy: “The labor market is particularly strong, but it is clearly out of balance, with demand for workers substantially exceeding the supply of available workers. Inflation is running well above 2 per cent, and high inflation has continued to spread through the economy. While the lower inflation readings for July are welcome, a single month's improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down.”
Policy Stance: “We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2 per cent. July's increase in the target range was the second 75 basis point increase in as many meetings, and I said then that another unusually large increase could be appropriate at our next meeting. Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook. At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases. Restoring price stability will likely require maintaining a restrictive policy stance for some time.”
Learning from Past Episodes: “Our monetary policy deliberations and decisions build on what we have learned about inflation dynamics both from the high and volatile inflation of the 1970s and 1980s and from the low and stable inflation of the past quarter-century. In particular, we are drawing on three important lessons.”
The first lesson “is that central banks can and should take responsibility for delivering low and stable inflation. There is clearly a job to do in moderating demand to better align with supply. We are committed to doing that job.”
The second lesson “is that the public's expectations about future inflation can play an important role in setting the path of inflation over time. Today, by many measures, longer-term inflation expectations appear to remain well anchored.”
The third lesson, “which is that we must keep at it until the job is done. History shows that the employment costs of bringing down inflation are likely to increase with delay, as high inflation becomes more entrenched in wage and price setting.”
In the end, he acknowledged how Volcker was ultimately successful in his fight against sky-high prices through what he called “a lengthy period of very restrictive monetary policy.” The current Fed is hoping to act strongly now in order to avoid such an outcome, Powell said.
Privacy News of the Week
Ex-Twitter executive blows the whistle, alleging reckless and negligent cybersecurity policies. (CNN)
Whistleblower Documents Prompt Questions about Twitter’s Approach to Election Integrity. (Tech Policy Press)
Protect Your Inbox: DuckDuckGo Email Protection Beta Now Open to All! (DuckDuckGo)
Several Russian "hacktivist" groups have announced coordinated DDoS attacks against Moldavian targets. The campaign appears to have been triggered by the visit of a Moldavian government official to Bucha, the site of one of Russia's genocides in Ukraine. (Risky Biz News)
The IT Army of Ukraine Attacks Russian Money Transfer Sites. (The Cryptosphere)
Enterprise giant Oracle is facing a fresh privacy class action claim in the U.S. (TechCrunch)
Larry Ellison's Oracle Started As a CIA Project. (Gizmodo)
University can’t scan students’ rooms during remote tests, judge rules. (The Verge)
The number of companies caught up in recent hacks keeps growing. (ARS Technica)
Google refuses to reinstate a man’s account after he took medical images of his son’s groin. (Guardian)
Charts of the Week
👉 1. Confidence in Powell Below Historical Average for Fed Chair
Current Federal Reserve Chairmen Jerome Powell's latest economic confidence reading of 43% is below his term average of 50%, which is also the historical average for the Federal Reserve chairperson over the past 22 years. Alan Greenspan, who served five terms in the position, inspired majority-level confidence for each of Gallup's five readings between 2001 and 2005.
In contrast, the two chairs of the Federal Reserve who followed Greenspan -- Ben Bernanke and Janet Yellen -- failed to register confidence ratings above 50%, and each averaged far lower ratings over their terms in office, 44% and 41%, respectively.
👉 2. Russian Corporate Profits Jump 25% despite Western Sanctions
Russian corporate profits jumped 25% in the second quarter, even as the sweeping US and European sanctions imposed over the Kremlin’s invasion of Ukraine pushed the economy into recession.
“The second quarter results were very good, demonstrating the resilience of the Russian economy,” analysts at the state-owned lender wrote. “The solid profit growth provides hope for a revival in corporate investment.”
👉 3. Consumer perception of inflation across categories
👉 4. Russia-Ukraine War and Human Displacement
Since the onset of the Russian invasion, one-third of Ukrainians have been forced from their homes. This has created one of the largest human displacement crises in the world.
According to the UN refugee agency, UNHCR, there are more than 6.6 million refugees across Europe and some seven million internally displaced within Ukraine. It is mostly women and children who have fled Ukraine, as men aged between 18 and 60 have been instructed to remain and fight.
The map presented above shows where people have been fleeing.
👉 5. Where Will the World’s Next 1,000 Babies Be Born?
Every four minutes, approximately 1,000 babies are born across the globe. But in which countries are these babies the most statistically likely to come from?
Using data from the CIA World Factbook, this infographic by Pratap Vardhan (Stats of India) paints a picture of the world’s demographics, showing which countries are most likely to welcome the next 1,000 babies based on population and birth rates as of 2022 estimates.
👉 6. French Electricity Price Exceeds 1,000 Euros per Megawatt hour for the First Time
The price of power in Europe’s two key markets surged more than 25% on Friday, a chaotic spike that will see the continent’s leaders hold an emergency meeting to discuss the crisis.
French 1y ahead electricity price exceeds €1,000 per megawatt hour for 1st time. The German equivalent also gained to a record, hitting as high as €829 a megawatt hour, capping a 48% gain this week.
Electricity for next year in Germany and France- both beset by their own severe crises- are setting almost records daily. This is a result of both Russia's restrictions on natural gas supplies and France's ongoing nuclear power production downturn.
Across Europe, governments have begun to take the drastic step of limiting energy use. In the UK, household bills are set to jump in October after a cap on costs was lifted. The soaring prices look set to force millions of people to curb consumption.
👉 7. US Dollar nears its 20-Year High
👉 8. Bitcoin Tanks After Powell Says Fed May Keep Raising Interest Rates
The price of Bitcoin took a hit this morning, falling near $20,000 after Federal Reserve Chair Jerome Powell said the U.S. central bank may well keep raising interest rates. The rest of the crypto market was also in the red following Powell’s comments. Ethereum, the second biggest digital asset, trading for around $1,500, an 8% drop in the past 24 hours.
The continued monetary policy stance of central banks of raising interest rates to tame inflation has led to a strong dollar while other markets, like U.S. equities, have taken a hit as investors move away from risk assets (such as tech stocks and crypto) in the face of economic uncertainty.
That’s all for this week folks, and thank you so much for making it this far! I hope you had lots of takeaways. Please subscribe if you haven’t yet and yes, subscriptions won't cost you a penny. It’s free!
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Have a great week ahead,
Shreyas