M&A Deals: From Friendly Approaches to Hostile Battles

Friendly Negotiations

• The first step of M&A deals is usually a?friendly negotiation?between the boards of the acquirer and target companies.
• This approach allows access to crucial data from the target for accurate valuation and due diligence.

Reliance Industries' Attempt to Acquire L&T Finance (2019)

Background

• Reliance Industries Ltd.?(RIL),?a major Indian conglomerate,?sought to acquire L&T Finance Holdings Ltd.?(L&T FH),?a prominent financial services company,?in 2019.
• The proposed deal was valued at approximately $11 billion,?making it one of the largest M&A transactions in India's financial services sector.

Friendly Negotiations

• Initially,?negotiations between RIL and L&T FH were deemed "amicable."
• L&T FH's board of directors constituted an independent committee to evaluate the offer.
• The committee engaged in detailed discussions with RIL representatives to assess the deal's merits and potential synergies.

Reasons for Friendly Negotiation Failure

Valuation Disagreement

• L&T FH's board felt the offered price,?while attractive,?undervalued the company's potential and future growth prospects.
• Reliance Industries was unwilling to raise its offer beyond a certain point.

Minority Shareholder Concerns

• Some minority shareholders of L&T FH expressed reservations about the deal,?potentially leading to legal challenges and protracted negotiations.

Regulatory Hurdles

• Obtaining requisite approvals from Indian regulatory bodies like the Competition Commission of India (CCI) could have further delayed the process.

Outcome

• Ultimately,?L&T FH's board of directors rejected the offer in September 2019,?citing concerns about valuation,?shareholder sentiment,?and regulatory uncertainties.
• The failed acquisition attempt marked a significant setback for RIL's financial services ambitions and highlighted the complexities involved in such large-scale M&A transactions in India.

Other reasons for Friendly Negotiation Failure

Political Interference

Vodafone's acquisition of Hutchison Essar (2017)

Background: Vodafone, a major telecom company, sought to acquire Hutchison Essar, another telecom operator, in a deal valued at $11.1 billion in 2017.

Friendly Negotiations:?Initial talks were amicable, and both companies agreed to the terms.

Government Intervention:?The Indian government raised concerns about the deal, citing potential security risks and monopolistic tendencies within the telecom sector.

Regulatory Hurdles:?The Department of Telecommunications (DoT) imposed stringent conditions and delayed approvals for months.

Outcome:?Despite repeated attempts to address government concerns, Vodafone eventually abandoned the deal in 2018, citing the "protracted regulatory environment."

Adani Group's takeover of DLF Limited (2020)

Background:?Adani Group, a conglomerate expanding into real estate, expressed interest in acquiring DLF Limited, a major developer, in 2020.

Friendly Negotiations:?Initial discussions were positive, with DLF expressing openness to the deal.

Government Intervention:?The Enforcement Directorate (ED) initiated an investigation into DLF's financial dealings, potentially delaying or jeopardizing the deal.

Legal Challenges:?DLF shareholders and minority investors raised legal challenges against the proposed transaction, citing concerns about transparency and potential undervaluation.

Outcome:?While negotiations continued for some time, the uncertainty caused by government investigation and legal challenges ultimately led Adani Group to back out of the deal in 2021.

Hostile Deals

If the target board rejects the offer, the acquirer may resort to?hostile tactics?like: Toeholds:?Buying up to 25% of the target's shares in the market (illegal to exceed this without disclosure).

Bear Hugs:?Publicly announcing the takeover bid to pressure the board and shareholders.

Tender Offers:?A formal offer to buy shares directly from target shareholders, bypassing the board.

Adani Group's takeover of NDTV (2022-present)

Initial Toehold: In 2022,?Adani Group acquired a 29.18% stake in NDTV,?a leading media company,?through open market purchases and debt-to-equity conversion.?This effectively secured a toehold without triggering mandatory tender offers due to NDTV's complex shareholding structure.

Public Pressure (Bear Hug): Following the toehold acquisition,?Adani Group launched a public campaign,?highlighting its interest in fully acquiring NDTV and emphasizing synergies.?This generated significant media attention and investor interest,?putting pressure on NDTV's board and shareholders.

Multiple Tender Offers: Adani Group subsequently launched two separate tender offers: The first offer targeted 26% of NDTV's shares at a premium price. The second offer,?triggered by NDTV's resistance,?aimed for a full takeover by seeking up to 100% of shares.

Ongoing Legal Challenges: NDTV,?its founders,?and some minority shareholders have challenged the acquisition in court,?citing concerns about transparency,?valuation,?and alleged regulatory loopholes exploited by Adani Group.

Current status: The legal battle between Adani Group and NDTV is ongoing,?with the Supreme Court yet to deliver a final verdict.

Observations: While this case doesn't involve a classic "toehold + bear hug + tender offer" sequence,?it showcases elements of each tactic.?The initial toehold provided a strategic advantage,?followed by public pressure and multiple tender offers,?highlighting the hostile nature of the takeover attempt.

Zee Entertainment Enterprises and Invesco Dispute (2021-2022)

Shareholder Activism: In this case,?Invesco,?a major shareholder in Zee Entertainment,?a media company,?engaged in a hostile takeover attempt through shareholder activism.

Proxy Fight: Invesco challenged Zee's proposed merger with Sony Pictures Networks India and demanded an extraordinary general meeting to replace Zee's board with its nominees.?This tactic aimed to gain control of the company from within.

Tender Offer Threat: While Invesco didn't formally launch a tender offer,?it hinted at such a possibility if its demands weren't met,?putting pressure on Zee and its shareholders.

Outcome: Zee eventually managed to retain control through strategic alliances and regulatory approvals.?However,?the incident demonstrates how shareholder activism and the threat of tender offers can be used as hostile tactics in M&A situations.

Reasons for Hostile Deals:

Undervaluation:?The target board may believe the offered premium is insufficient.

Negotiation Strategy:?The acquirer may hope to pressure the board for a better deal.

Agency Problem:?The target board may prioritize management interests over shareholder value.