SEBI Inaction Part 2 – Why did a VC firm GA invest in NDTV?

Normally VC firms such as General Atlantic (GA) invest for stellar returns but its NDTV deal seems different

Normally VC firms such as General Atlantic (GA) invest for stellar returns but its NDTV deal seems different
Normally VC firms such as General Atlantic (GA) invest for stellar returns

In Part 1, we described the four different set of SEBI violations committed by NDTV, on which the SEBI has yet to act. This is Part 2.

General Atlantic Partners investment into NDTV

General Atlantic Partners (GA) is a Venture Capital firm, based out of Palo Alto California. They have been in business since 1980 and boast of having invested in 250 growth companies. Their focus is “exclusively” on partnering with exceptional companies that have proven business models and strong revenue growth in dynamic industries.

Normally Venture Capital firms (such as GA) expect a 10X (10 times or 1000%) of their investment in order to exit. Why was GA satisfied with a meager 166% return on investment?

It must be mentioned here that NDTV has been experiencing financial difficulties since 2004 and the fact that GA found them to be a company that fits their investing criterion is in itself open to discussion. Be as it may be, GA decided to take the plunge and invest in NDTV. GA bought about 4.846 million (48.46 lakh) shares from SHYAM Cellular in 2005 for a 7.9% stake in NDTV, which itself is shrouded in mystery. General Atlantic’s European subsidiary GA European Investments Ltd. acquired the 4.846 million shares at a price of Rs. 240 per share, for a dollar amount of $26.4 million (assuming a conversion rate of 1 USD= Rs. 44).

What happened next?

In 2007, for reasons best known to them, GA wanted out of the NDTV investment. The following timeline shows what played out next and how the whole process fell foul of PIT (Prohibition of Insider Trading Regulations)  and SAST (Substantial Acquisition of Shares & Takeover Regulations) of the Securities and Exchange Board of India (SEBI).


Sr. No. Date Event/ SEBI Violations
1 13 July,2007 Prannoy Roy on behalf of NDTV signs a term sheet/ agreement with NBCU International (a wholly owned subsidiary of General Electric) in London for selling a 26% stake in NDTV Networks Ltd. (UK Plc and 100 % subsidiary of NDTV) for USD 150 million dollars. This information (mandatory) was not disclosed to Stock Exchanges/ Shareholders/ Public and SEBI etc. i.e. unpublished price sensitive information (UPSI) intentionally withheld.
2 13 July to Dec 2007 Negotiations continued with NBCU to close the transaction based on the term sheet above. However, all details and information is shared about this transaction with fund managers of GA, Morgan Stanley etc. and GA fund manager is totally aware of this unpublished price sensitive information (UPSI). Huh?!
3 12 Dec, 2007 GA that held (since 2005) 4.846 million (48.46 lakh) shares of NDTV sends a draft agreement specifically mentioning price per share (Rs. 400/-) and number of shares to be sold to Prannoy Roy and Radhika Roy by email written by Chris Lanning (Managing Director & General Counsel) in the US, asking Sunish Sharma, Fund Manager of GA (India) to send the Agreement to Prannoy and accordingly proceed with the sale transaction.
4 12-25 Dec, 2007 Email exchanges/ negotiations on timing and mode etc. of executing the deal continue without any public disclosure between GA, AZB (a law firm) and Prannoy Roy. GA keeps insisting that price is going up and Prannoy is not executing the agreed buy trade of these 4.846 million shares and it is becoming difficult for them to hold on as the pre-agreed price is much below market price then prevailing. Thus, a clear case of fraudulent dealing and insider trading based on UPSI. All email exchanges etc. are with SEBI as evidence.
5 26 Dec, 2007 Finally, the pre-agreed price of 11.12.2007 is used and the GA owned shares are sold at Rs.400/- per share was executed on the BSE. That day, the prevailing market price was at a major variation (around Rs. 440 a share). Thus, a pre-meditated and fraudulent (as not disclosed) trade was executed as an open market sale/purchase (declared officially so). Thus, this trade attracts PIT, FUTP and Disclosure violations of SEBI.
6 26, Dec 2007 Immediately the Takeover code was triggered and Roys had to announce an open offer to acquire 20% more of the issued capital of NDTV as per SEBI SAST Regulations (that they did).
7 31 Dec, 2007 They officially made the announcement of open offer for 1.25 crores shares worth 550/- crores as is mandatory under SAST. Had made a false statement in the announcement that they had resources to do so.
8 9 Jan, 2008 NDTV issued a denial publicly and on BSE website that no such agreement or arrangement with NBCU has been entered into. Thus, squarely attracting FUTP Regulations of SEBI. This denial was done as press carried news item saying from unknown sources a deal had been signed by them with GE Co. (NBCU).
9 22 Jan, 2008 NDTV makes a formal announcement about the 150 USD million NBCU deal, thus clearly committing disclosure and FUTP violations.

Some unanswered questions

  1. Normally Venture Capital firms (such as GA) expect a 10X (10 times or 1000%) of their investment in order to exit. Why was GA satisfied with a meager 166% return on investment?
  2. Even on the date of the sale, should the selling price not have been closer to Rs. 440 (the market rate). Why was GA leaving money on the table?

Continued…

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