London-based BAT is ITC’s largest shareholder, owning slightly more than 29% in the largest domestic cigarette maker, and will remain so even after the transaction, with around 25.5%.
According to the term sheet, the price range for the proposed sale of shares is 384-400.25 apiece, which translates to a discount of up to 5% at the lower end of the price band, going by ITC’s closing price on Tuesday on the BSE.
Total offer size is 16,775 crore at the lower end of the price range. The stake sale will be through wholly owned subsidiary Tobacco Manufacturers (India) and the expected settlement date is Thursday.
BAT wanted more than 25% shareholding in ITC to retain strategic influence and veto rights, chief executive Tadeu Marroco said in December, as reported by ET.
Shares of ITC, with a market capitalisation just north of Rs 5 lakh crore, have fallen lately in anticipation of the BAT block deal. The stock declined 1.26% on Tuesday to close at Rs 404.25 apiece, while the benchmark Sensex climbed 0.22%.
BAT said it intends to sell up to 437 million shares in ITC “by way of an accelerated book-building process (block trade), subject to customary closing conditions.”Marroco said in Tuesday’s statement that he is confident ITC will “continue to create further value” for its shareholders under the current management. “We look forward to remaining important shareholders in ITC as it continues its journey of growth. With this transaction, BAT can accelerate the start of a sustainable buyback, while enabling us to continue to deleverage toward a new target range of 2-2.5x adjusted net debt/adjusted Ebitda,” he said. BAT will use net proceeds of the block deal to buy back company shares over a period ending December 2025, starting with 700 million pounds in 2024.
At present, BAT owns 29.01% in ITC through Tobacco Manufacturers (with 23.87%), Rothmans International Enterprises and Myddleton Investment Company.
LIC, with 15.2%, is the second-biggest stockholder in the century-old Kolkata company.
Tobacco to FMCG
ITC has more than 75% share of the country’s cigarette market. It owns the second largest hotel chain, is one of the leading packaged food companies, the largest paper and packaging company, and a leading player in the agri business.
BAT said ITC is a valued associate of the company “in an attractive market with long-term growth potential, where BAT benefits from exposure to the world’s most populous market.” It said BAT’s initial investment in ITC dates back to the early 1900s “and the two companies have a longstanding, mutually beneficial relationship.”
“ITC has delivered significant value for its shareholders and BAT continues to be fully supportive of ITC’s management team, performance and strategy,” said the UK company. Marroco said in February as well as December that British American Tobacco had been “actively working for some time” to sell a part of its stake in ITC, while ensuring it keeps over 25%. It added that the company was completing the regulatory process, including approval required from the Reserve Bank of India (RBI), for equity dilution.
India does not permit foreign direct investment in the manufacturing of cigars, cigarettes and tobacco substitutes. BAT earlier indicated it may exit from ITC’s hotel business, which is currently in the process of being demerged into a separate entity.