BAT Plc to sell up to 43.69 crore shares of ITC in block trade

BAT Plc, parent of ITC Ltd, has announced its intent to sell up to 43.69 crore shares or 3.5 per cent stake of its Indian associate in a block trade.

The price band for the block trade is ₹384-400.25 a share, fetching the London-based company nearly ₹17,500 crore (around $2 billion) at the upper end of the price range, sources said. Citibank and BofA Securities are managers to the deal.

After the stake sale, BAT will still be holding 25.5 per cent stake in ITC. The British tobacco company said that it would be using the proceeds of the stake sale for a buyback of its own shares over this year and next, of which £700 million (₹7,411 crore) would be spent in 2024.

In a release, BAT said, “ITC is a valued associate of BAT in an attractive market with long-term growth potential where BAT benefits from exposure to the world’s most populous market.”

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As one of India’s leading fast moving consumer goods companies, ITC had “delivered significant value for its shareholders and BAT continues to be fully supportive of ITC’s management team, performance and strategy,” it added.

 “I am confident that ITC, under the stewardship of its current management, will continue to create further value for its shareholders. We look forward to remaining important shareholders in ITC as it continues its journey of growth,” BAT’s CEO Tadeu Marroco was quoted as saying in the release.

BAT deleveraging

The maker of popular cigarette brands such as Dunhill, Lucky Strike and Pall Mall reported a loss of £15,751 million in 2023 due to an impairment charge related to its US business. At the end of the year, it had a debt close to £34 billion.

While announcing its results in February Marroco had said that it was looking at monetising its stake in ITC as part of its efforts to enhance balance sheet flexibility and reallocate capital.

The key elements of its capital allocation strategy are continued investment in its transformation, progressive dividends, deleveraging to a new range of 2-2.5 times ratio of net debt to EBITDA and share buybacks.

BAT said that its initial investment in ITC dated back to the early 1900s and the two companies had a “longstanding, mutually beneficial relationship”.

Relations between the two however haven’t always been harmonious. In 1995, the two were engaged in a corporate tussle when BAT sought to tighten its hold on ITC by raising its stake to a controlling 51 per cent, but faced opposition from the ITC management led by then chairman KL Chugh. It had also sought Chugh’s resignation alleging financial irregularities, which were later authenticated in an audit resulting in his arrest.