ITC clears merger of hotel arms

The board of ITC Ltd approved the scheme of merger of ITC Hotels Ltd (IHL) and Ansal Hotels Ltd (AHL) with ITC Ltd at a meeting held here today.

IHL and AHL are subsidiaries of ITC Ltd, and both were in the business of owning or operating or managing five star deluxe hotel properties.

Two sets of share exchange ratios have been worked out for the merger. IHL shareholders will get three shares of ITC for every 25 shares held by them in ITC Hotels.

AHL shareholders will get one share of ITC for every 150 shares held by them Ansal Hotels.

ITC chairman Y C Deveshwar said, "The timing of the amalgamation is particularly appropriate as the travel and tourism industry in India is poised for rapid growth."

ITC said in a release that it determined the share exchange ratios on the basis of a valuation carried out by S B Billimoria and Co (SBB), assisted by its former managing partner, Y H Malegam. JM Morgan Stanley acted as advisors to the issue.

ITC Ltd held approximately 72 per cent of the equity share capital of IHL and together with IHL held over 90 per cent of the equity share capital of AHL.

The proposed amalgamation was expected to enhance earnings per share for ITC, while shareholders of IHL and AHL will be able to participate in the larger growth opportunity presented by ITC's diversified portfolio and strong balance-sheet, the ITC media release said.

The proposed date for the merger would be April 1, 2004 and the merger scheme would be subject to approvals by the High Courts of Calcutta and New Delhi under Sections 391 to 394 of the Companies Act, 1956.

As nearly 80 per cent of the capital employed in the ITC group hotels business was already on ITC's balance-sheet, the merger would lead better alignment of investment and incomes, improve fiscal efficiencies, lower operating costs and attract investors to ITC's hotels business, it added.

By merging IHL with itself, ITC would be bringing under one roof the four layers of hotels that it owned or managed.

The layers were branded ITC Hotels for the super-premium category, WelcomGroup for the premium hotels, Fortune Park for the mid-market hotels and WelcomHeritage for the historical properties.

IHL was one of the more profitable hotel companies, with profit after tax of Rs 20 crore on sales of Rs 160 crore for the year ended March 31, 2004. Its paid-up capital was Rs 30 crore, while it had Rs 194 crore in reserves.

Its total assets were Rs 248 crore. ITC held 72.06 per cent in IHL as on March 2004.

In comparison, the hotels segment of ITC Ltd reported revenues of Rs 257 crore and profit before tax of Rs 32 crore for the full year ended March 2004.

ITC had so long been focused on building and owning properties, while IHL specialised in running and managing hotels.

ITC itself owned only the newly built Sonar Bangla at Kolkata, Mughal Sheraton at Agra and Grand Maratha in Mumbai, besides the older Maurya Sheraton in Delhi and Chola Sheraton, Chennai.

ITC was also building the chain's second new Mumbai hotel, the Grand Central.

IHL's managed a larger basket of properties, but owned only Windsor Sheraton at Bangalore and Rajputana Palace Sheraton at Jaipur.

However, it had 3,065 rooms under management, through licences that covered the ITC properties as well as Kakatiya Sheraton at Hyderabad, Marriott WelcomHotel at Delhi, the Park Sheraton at Chennai and the chain's Aurangabad and Vizag hotels.

In all, IHL owned or managed 58 properties at 25 locations. IHL was the platform through which ITC owned and operated the Fortune Resort Bay Island at Port Blair, and 13 hotels under the Fortune Park flag.

IHL also had a 50:50 joint venture with Marudhar Hotels Ltd called Maharaja Heritage Resorts, which managed 31 heritage properties under the WelcomHeritage brand.

IHL's net profit stood Rs 7 crore for the first quarter ended June 2004 as against Rs 59 lakh in the corresponding period of the previous year. Total Q1 income rose 37 per cent to Rs 42 crore from Rs 31 crore.

ITC chairman Y C Deveshwar had told the media recently that the company was implementing its strategic investment plans to complete the ITC Welcomgroup chain.

Capital employed in the business was Rs 983 crore (30.06.2003 - Rs 960 crore), including Rs 850 crore (30.06.2003 - Rs 822 crore) relating to new hotels at Mumbai and Kolkata as well as capital work in progress in respect of the second hotel under construction in Mumbai.

ITC however had to book a holding cost in respect of Hotel Searock which was the subject matter of a legal dispute. The Mumbai Grand Central was expected to open by end-2004.

A renovation and product upgradation was underway at the ITC Maurya Sheraton, New Delhi. Currently, nine of the ITC-Welcomgroup hotels were marketed world-wide by the Sheraton Corporation, a part of Starwood Hotels & Resorts.