BAT to sell 3.5% stake in ITC via block deal

ITC's largest shareholder BAT Plc on Tuesday said in a statement that its wholly-owned subsidiary Tobacco Manufacturers (India) Ltd will sell around 3.5% stake in ITC Ltd to institutional investors by way of a block deal and has launched the process.

BAT said after the completion of the proposed block deal, BAT will continue to remain a significant shareholder of ITC with around 25.5% holding. BAT wanted to have more than 25% shareholding in ITC to have a strategic influence and veto rights in the company, chief executive Tadeu Marroco had said in December.

At present, BAT owns around 29.01% stake in ITC Ltd through three entities -- Tobacco Manufacturers, Rothmans International Enterprises, and Myddleton Investment Company, with the first one alone holding around 23.87%. BAT said it intends to sell up to 436,851,457 ordinary shares in ITC “by way of an accelerated bookbuild process (the block trade), subject to customary closing conditions.”

Even after the completion of the deal, BAT will continue to be ITC’s largest shareholder second only to Life Insurance Corporation of India which owns 15.2%.

BAT said it intends to use the net proceeds of the block deal to buy back BAT shares over a period ending December 2025, starting with £700m in 2024. "We will continue to allocate operating cash flow to fund investment in our transformation and to further deleverage," it said.

Marroco said in Tuesday’s statement that he is confident that ITC under the 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. With this transaction BAT can accelerate the start of a sustainable buyback, while enabling us to continue to deleverage towards a new target range of 2-2.5x adjusted net debt/adjusted EBITDA,” he said.

BAT said going forward the key elements of capital allocation at BAT will include continued investment in its transformation, progressive dividends, continued deleverage to a new range of 2-2.5x adjusted net debt/adjusted EBITDA, and sustainable share buybacks.

ITC share prices have fallen this week after speculation engulfed the market that BAT will complete the block deal by this week itself. The share price fell by 1.26% on Tuesday to close at Rs 404.25 when the benchmark Sensex went up by 0.22%.

ITC is the country’s largest cigarette manufacturer with over 75% share, owns the second largest hotel chains, is one of the leading packaged food companies, the largest paper and packaging company, and a leading private sector company in the agri-business.

BAT said in the statement that 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.”

The company further said “ITC has delivered significant value for its shareholders and BAT continues to be fully supportive of ITC’s management team, performance and strategy.”

BAT chief executive in February and December had said it has been “actively working for some time” to sell a part of its stake in ITC ensuring it has over 25% and that it is completing the regulatory process including the approval required from the Reserve Bank of India.

India does not permit foreign direct investment in the manufacturing of cigars, cigarettes and tobacco substitutes. BAT has earlier also indicated it may exit from ITC’s hotel business which is currently in the process of being demerged into a separate entity.