How a merger between two broadcasters survived news of a loan default and a US$4.3b debt. Rebecca Abraham reports

On 18 April the promoters of Dish TV India, a Bombay Stock Exchange-listed company that provides direct-to-home (DTH) broadcasting services, launched an open offer for a 26% stake in the company.

This was the latest step in a drawn-out saga that began in November 2016, when the boards of Dish TV and Videocon d2h – which had listed on the Nasdaq in March 2015 – approved the amalgamation of Videocon d2h with Dish TV. It was to be the first consolidation in the DTH sector.

Soon after the announcement of the all-stock merger, Saurabh Dhoot, the executive chairman of Videocon d2h, cautioned that while the “combination creates large scale”, it would not have a dominant position in the DTH market. He said the merged entity, which would be named Dish TV Videocon, would have close to 30 million net subscribers out of a total of 175 million households with televisions in the country.

DARK CLOUDS

As is typical in schemes of amalgamation that require court approval, the merger between the two companies was completed only a year-and-a-half later, on 22 March. It required approvals from the National Company Law Tribunal (NCLT), the Competition Commission of India (CCI), the Securities and Exchange Board of India and the Ministry of Information and Broadcasting.

Since it involved a Nasdaq-listed company, the merger also needed to meet certain requirements of the US Securities and Exchange Commission. Shepherding companies through a court-driven process of a scheme of amalgamation is a challenge. In this instance, the legal advisers had the added challenge of advising on a transaction that in its final stages saw storm clouds gather over one of the parties.

A group company of Videocon d2h, Videocon Industries, was prominently named on a list of defaulters that State Bank of India provided in early January to the NCLT. The bank said Videocon Industries owed a consortium of lenders ₹290 billion (US$4.3 billion).

Dish TV is part of the Mumbai-based Essel group, which has interests in various companies including Zee News, Shirpur Gold Refinery, Essel Propack, a packaging company, and Essel World, an amusement park. The company on 11 January said it was evaluating whether the “insolvency and/or enforcement proceedings” reported would impact its rights and obligations under the merger agreements, and the merger itself. The rethink did not last long and on 6 February it said the merger would proceed after the advisers to the merger had evaluated the situation.

While Luthra & Luthra was legal counsel to Dish TV, which emerged with a dominant share in the merged entity, Videocon d2h was advised by lawyers from Shardul Amarchand Mangaldas & Co.

Shearman & Sterling acted as international counsel for both Dish TV and Videocon d2h. (See page 38 for details on individual lawyers.)

APPROVALS ARRIVE

The CCI was the first regulator to approve the merger. The antitrust regulator in its May 2017 order observed that “there is horizontal overlap” in DTH services provided by the parties in question, and that Dish TV may have some structural linkages with Essel group.

However, it concluded that “the regulatory landscape and presence of other competitors would ensure that there is no adverse impact on competition, on account of vertical relationship”.

The CCI addressed customer apprehensions about the cost of technical realignments that would need to be undertaken, as Dish TV and Videocon d2h use different technologies. It accepted undertakings from the companies that the cost would be borne by the merged entity and asked for annual reports to ensure compliance with the undertakings.

In March 2017, the Mumbai bench of the NCLT, which needed to approve the merger, had directed that Videocon d2h hold a meeting of its equity shareholders to consider the merger.

The NCLT allowed the merger in July 2017, holding that it “appears to be fair and reasonable and is not violative of any provisions of law, and is not contrary to public policy”. In doing so the NCLT had received reports from the regional director of the Ministry of Corporate Affairs and its own official liquidator.

The last approval needed was from the Ministry of Information and Broadcasting. This was obtained on 15 December 2017, following which Videocon d2h began the process of voluntarily delisting its American depositary shares from Nasdaq and deregistering itself with the US Securities and Exchange Commission.

In its filing, Videocon d2h said holders of its American depository shares would receive shares of Dish TV or global depositary receipts of Dish TV that would be traded on the London Stock Exchange.

It was anticipated that the scheme would become effective on 27 December 2017, when the NCLT order approving the scheme of amalgamation was to be filed with the Registrar of Companies, Maharashtra. This, however, happened only on 22 March 2018.

The structure of the merged entity saw the promoters of Dish TV transition to becoming the promoters of Dish TV Videocon. Meanwhile, the promoters of Videocon d2h have the right to nominate two directors on the board of Dish TV Videocon.

Both sets of promoters earlier held majority stakes in their individual companies. Together they are being lauded by industry watchers for creating a formidable combination, albeit one that took longer than expected to be put together. 

LEGAL ADVISERS

For Dish TV India. Luthra & Luthra’s M&A team was led by senior partner Mohit Saraf and included partners William Vivian John and Vaibhav Kakkar, who are based in Mumbai and Delhi, respectively. The firm’s competition law team was led by Delhi team partner Abdullah Hussain.

For Videocon d2h. Shardul Amarchand Mangaldas & Co’s M&A team was led by partner Gunjan Shah and included partners Arjun Ghose, Shruti Kanodia and Manjari Tyagi, principal associate Anuj Trivedi, senior associate Mukul Aggarwal, and associates Aditya Kumar and Shivankar Sharma.

The firm’s competition law team was led by partners Shweta Shroff Chopra and Aparna Mehra and included principal consultant Rohan Arora and associates Toshit Shandilya and Neetu Ahlawat.

Shearman & Sterling acted as international counsel on the deal, advising on US and UK law aspects of the transaction. The firm’s team, which included lawyers from its capital markets and M&A practices, was led by partner George Karafotias from its New York office. Counsel Pawel Szaja and associates Jonathan Handyside and Cecilia Ferreira from the firm’s London office also advised on the deal.

FAST TRACK MERGERS?

India is not the only jurisdiction with a court-driven process for mergers between companies, and the inevitable delays that arise are seen as the cost of doing business.

However, since December 2016, not all mergers require court approval. In what is as yet a novel process, section 233 of the Companies Act, 2013, provides for fast-track mergers between two small companies or between a holding company and its wholly owned subsidiary, which can be completed in three to five months.

Such mergers only require approvals from the regional director of the Ministry of Corporate Affairs, the Registrar of Companies, and the official liquidator attached to the court in question.

These are rare as they are allowed only in very specific circumstances. The definition of a small company sets limits of ₹5 million for paid-up share capital and ₹20 million for turnover.

With the act providing the government the ability to include “other class or classes of companies” within the scope of section 233, it is possible that more companies will be able to benefit from fast-track mergers.