Amar Ujala to go public: burying a controversial past?

IN Media Business | 31/05/2015
The decision to go public has come nearly five years after the international hedge fund, D E Shaw, decided to withdraw its investment of Rs 117 crore in Amar Ujala Publications Limited.
After years of bruising legal battles, the feuding promoters of the company that publishes one of northern India's most popular Hindi dailies, Amar Ujala, seem to have buried the hatchet and will be soon going in for an initial public offering (IPO) of equity shares to raise up to Rs 50 crore.
The decision to go public has come nearly five years after the international hedge fund, D E Shaw, decided to withdraw its investment of Rs 117 crore in Amar Ujala Publications Limited, after alleging that the squabbling families that had promoted the company, the Maheshwaris and the Agarwals, had violated rules relating to foreign investment.
The IPO entails selling 2.7 million shares of the company, including a million shares held by a little-known company, Pun Undertakings Network, that stepped in to take over the investment made by D E Shaw, a New York-based private equity firm with offices in Hyderabad and Mumbai in India, besides Hong Kong, Shanghai and Tokyo.
At the time the legal tussles in the Amar Ujala group between the foreign investor and among the promoter families were at their peak, in November 2009, headlines were made when an individual associated with one of the promoter families was accused of bribing the former Chairman of the Company Law Board who was caught red-handed by the Central Bureau of Investigation. 
The story got even more sensational after a lawyer who was accused of abetting and facilitating the act of illegal gratification turned out to be the son of a prominent editor. Some of the charges against the lawyer, who worked in a well-known law firm, were recently quashed by a judge of the Delhi high court.  
After the IPO goes through, Amar Ujala Publications would have emulated the examples of two of its biggest rivals, Jagran Prakashan (publisher of Dainik Jagran) and DB Corp (publisher of Dainik Bhaskar). 
Unlike Amar Ujala Publications, however, the Jagran Prakashan group has had a cordial relationship with its foreign investors -- in April 2010, the Blackstone group had invested Rs 225 crore in a holding company of the Jagran Prakashan group after picking up a 7.5 per cent stake from the Irish media company, Independent News and Media, which continues to hold six per cent of the holding company's shares.
Dainik Jagran and Dainik Bhaskar have been vying with each other to be considered India's most widely-circulated and widely-read publication -- and also one of the world's biggest newspapers. Next in the pecking order is Hindustan (of the HT Media group) followed by Amar Ujala in the fourth position. 
Amar Ujala was founded in 1948 at Agra by Murari Lal Maheshwari and Dori Lal Agarwal. Nineteen editions of the newspaper are published from different locations in Uttar Pradesh, Uttarakhand, Himachal Pradesh, Jammu & Kashmir, Punjab and Haryana, as well as New Delhi and Chandigarh.
The combined daily readership of all editions of Amar Ujala has been estimated at 30.13 million with an average circulation of approximately 1.95 million copies per day during the first half of 2014. These readership and circulation figures have been provided in the draft red herring prospectus (DHRP) -- which is a preliminary document filed by a company before undertaking a public issue of its financial securities -- filed by Amar Ujala Publications to the Securities and Exchange Board of India (SEBI), the regulator of the country's capital markets.
The numbers provided would imply that each issue of the daily newspaper is read by 15 readers, which seems clearly unrealistic.
According to documents submitted by the company to SEBI, Amar Ujala reported a 14.98 per cent growth in circulation during the  January-June 2014 period over the same period a year earlier.  
The group also publishes a Hindi daily tabloid newspaper, Amar Ujala Compact, in six editions from various locations in Uttar Pradesh, which together clocked a readership of 2.59 million readers a day. 
The media group has 18 publishing facilities with a total installed capacity of printing roughly 3.78 million copies of the newspaper each day. Advertising accounts for 67 percent of the revenues of Amar Ujala Publications with subscriptions bringing in a little less than a quarter of the total turnover (23 per cent), the remainder coming from the company's other ventures. 
Besides newspapers, the group publishes educational books based on the curriculum of the National Council of Educational Research and Training (NCERT).  It also publishes a niche monthly magazine providing study material for those appearing for entrance examinations to the civil services and other examinations. 
In September 1979, the original firm set up by the group's founders, National Journals, was split into two partnership firms: Amar Ujala Publications and Amar Ujala Prakashan were created for conducting the group's operations in Agra and Bareilly respectively. 
Rajul Maheshwari and Sneh Lata Maheshwari were among the partners in both firms together with members of the Agarwal family. The partners of the firms changed several times till aclosely-held private limited company, Amar Ujala Publications Limited, was registered in Agra in 2001. 
Amar Ujala Prakashan, registered in Bareilly, then metamorphosed into Amar Ujala Prakashan Ltd and was later merged into Amar Ujala Publications Ltd by an amalgamation order sanctioned by the Allahabad high court on July 9, 2004.
The first round of the feud between the Agarwal and Maheshwari families began in 2006 after Ajay Agarwal, son of one of the original promoters, Dori Lal Agarwal, decided to sell his 35.33 per cent stake in the holding company of the Amar Ujala group. The Company Law Board (CLB) allowed Atul Maheshwari and Ashok Agarwal to buy Ajay Agarwal's stake for a sum of Rs 138 crore. Amar Ujala Publications was at that time valued at Rs 390 crore. 

Ajay Agarwal, a minority shareholder, made a third-party funding arrangement with Mediavest India Pvt. Ltd, a company in the Zee group headed by Subhash Chandra, and an unknown merchant banker, to buy out the majority stakes in the company held by Atul Maheshwari and Ashok Agarwal for Rs 252 crore.
This arrangement was, however, disallowed by the CLB, which also ruled that the minority stakeholder could not facilitate or negotiate or shop around with any third party for a period of three years to either acquire ownership or control over the company.
In 2007, the New York-based private equity firm D E Shaw acquired 18 per cent stake in Amar Ujala Publications Ltd for a sum of Rs 117 crore, through a Mauritius-based associate. 
In October 2010, the Maheshwari and Agrawal families got embroiled in a legal tussle with DE Shaw after the promoters allegedly reneged on an agreement to publicly issue the company's shares. 
Both families slapped a slew of legal cases against each other as well as the foreign investor. The internecine legal battles got unwieldy to a point that D E Shaw proposed an exit call accusing the promoters of violating government rules relating to foreign investment.
D E Shaw decided to divest its stake in the company and asked its promoters to pay the foreign firm a 25 per cent return on its investment. This was contested and the dispute went all the way to the Supreme Court.
In 2012, the legal dispute was settled and D E Shaw's stake was sold to a little-known private firm, Pun Undertakings Network, allegedly a shell company promoted by the Maheshwaris. 
By this time, the fight between the two promoter families got even more messy with Ajay Agarwal and his section of the Agarwal family filing a complaint against the Maheshwaris and also the Ashok Agarwal branch of the family in the CLB alleging operational mismanagement.
Ajay Agarwal had established a rival daily called DLA named after the initials of his father while the other faction in the Agarwal family led by Ashok Agarwal remained with the Maheshwaris in Amar Ujala.   
When Amar Ujala Publications had signed the deal with D E Shaw, the newspaper was run by Atul Maheshwari, who passed away in January 2011. 
The newspaper and the company publishing it iscurrently being overseen by Atul Maheshwari’s brother Rajul Maheshwari. On October 13, 2013, the Economic Times reported that Rajul Maheshwari and his family members would purchase the 14 per cent stake in the company belonging to the Agarwal family for 150 crore, a move that would consolidate the ownership of Amar Ujala Publications under one family.  
The tussle for control of the company between the two families took a sensational turn after a lawyer acting on behalf of the Maheshwari family who happened to be the son of a well-known newspaper editor (Ankur Chawla, son of Prabhu Chawla, Editor of the New Indian Express) was accused of abetting an act of bribery, according to court documents that are in the public domain. 
The bribe of Rs 10 lakh was allegedly paid to R. Vasudevan, the then Chairman, Company Law Board, to pass an order in favour of the Maheshwaris and against the Agarwals. While Vasudevan was allegedly caught "red-handed" by the CBI and charged, the allegations against Ankur Chawla (who was working with Karanjawala & Co) were quashed by the Delhi high court on November 2014 as the evidence submitted by the CBI was considered inadmissible.
Most of the major legal disputes between the promoters have apparently been resolved since, although there are certain minor disputes that are still pending. Rajul Maheshwari is currently in charge of the operations of the newspaper and, as already mentioned, the company has drawn up plans for its IPO to raise up to Rs 50 crore. 
The offering of shares will include the 1.7 million shares held by Rajul Maheshwari, Sneh Lata Maheshwari, Tanmay Maheshwari and a little-known entity, Antarctica Finvest Private Limited, which holds 28.97 per cent of the shares.
The biggest chunk of these shares is a million shares held by Pun Undertakings Network, according to the DHRP filed by the company that has been posted on SEBI's website.
It should be noted that while the cost of acquisition per share for the Maheshwaris as a whole ranges between Rs 15 and Rs 16.76 per share, the cost of acquisition of the same shares for Anatarctica Finvest is only Rs 5 per share. Interestingly, Antarctica Finvest is jointly held by Rajul, Sneh Lata and Tanmay Maheshwari.
This provides an indication of the complexity of the ownership structure of the Amar Ujala group.
The impending IPO will come after the holding company, Amar Ujala Publications, recorded three years of negative cash flows from 2012. At the end of March 2014 (the latest set of figures given in the DRHP), the company had liabilities of Rs 7.05 crorein defamation cases, and Rs 16.8 crore by way of income tax demands that are under appeal at various levels. These two figures are up from  Rs 3.7 crore an Rs 1.42 crore(respectively) since March 2013.
The company is currently facing eight criminal cases, nine civil cases, seven tax-related cases, five related to consumer complaints, 11 recovery complaints and 26 cases of labour disputes, while 78 cases of complaints under the Negotiable Instruments Act are pending in various courts in the country -- amounting to an aggregate liability of  nearly Rs 3.6 crore.
In addition, members of the Maheshwari family are defendants in a legal dispute pertaining to the use of the brand name ‘Amar Ujala’, which has been contested and royalty demanded by the heirs of Dori Lal Aggarwal. This dispute is currently sub-judice in a court in Agra.
In addition, the promoters Rajul and Sneh Lata Maheshwari need to be in charge of all the operations of the company as the shares of the promoter families have been pledged with Axis Capital and other companies which, if enforced, will dilute their holdings. 
The litany of legal battles in the Amar Ujala group seems to suggest that some of the disputes arose on account of control over two Hindu Undivided Family (HUF) entities. 
The HUF is a unique Indian tax saving financial entity where the eldest male or karta of the HUF is the representative of the joint undivided ancestral property. He has almost absolute management rights although the ownership of the propertyis otherwise equally held by all members (or coparceners) of the HUF, including women and minor children. Any alienation of the property requires the consent of all the coparceners. 
For an international investor, the complexities of running an HUF may have been difficult to comprehend. There is apparently no parallel for such an entity globally. HUFs became a popular tax saving mechanisms in the 1970s when the maximum marginal rate of personal income tax in India was at its highest level of 97.5 percent when Indira Gandhi was India's Prime Minister.
The karta of an HUF has the power to alienate for value the joint family property in three special cases: legal necessity, benefit of estate or for the performance of indispensable duties. However, since the rules for HUFs are not well codified, they are thus subject to different interpretations. 
It is possible that the financial needs arising out of all the mounting liabilities of Amar Ujala Publications and the "indispensable duty" of publishing newspapers and upholding free speech (enshrined in Article 19(1)(a) of the Constitution of India) provided the company's promoters, Rajul and Sneh Lata Maheshwari, a much-needed exit route to get rid of the HUF albatross around their neck.
The fate of the public offer of shares of the company that publishes India's fourth-largest Hindi daily is expected to be known in the near future. Anybody can comment or react to the DRHP and SEBI will thereafter have to take a call on whether to allow the company to ahead with its proposed capital issue.

Sources and References:

1. Draft red herring prospectus of Amar Ujala Publications posted on the website of the Securities and Exchange Board of India.

2. Khandekar, Vanita Kohli, "The rising power of Hindi: Publishers are scaling up their businesses to gain readers," Business Standard, December 13, 2012: 
3.“Amar Ujala owners to buy out DE Shaw stake”, Business Standard, November 25, 2012.

4. Order of the High Court of Delhi. 
5. Kajiji, Shabnum, “Karta of an HUF  has almost absolute management rights”, Mint, March 23, 2015.
6. Atul Maheshwari retains control over 'Amar Ujala'.

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