New Takeover Code: ITC hints at stake hike in EIH

A day after the market regulator increased the open offer trigger in the Takeover Code from 15 per cent to 25 per cent, ITC said it was open to investing more in EIH, which owns the Oberoi chain of hotels. The tobacco to fast moving consumer goods major holds 14.98 per cent in EIH.

“It will be decided by our treasury department, but if there is an opportunity and the price is good, we will invest,” said ITC Chairman Y C Deveshwar.

ITC has Rs 4,000-5,000 crore cash on its books. “Whenever we have invested in equity, it has been in businesses that we know, and hence hotels,” said Deveshwar.

ITC has been accumulating EIH shares since 2000, leading to speculation that it may be trying to make an open offer to EIH shareholders – something Deveshwar has denied several times.

Deveshwar’s denials, however, have not cut ice with the EIH promoters, who even got Reliance Industries Chairman Mukesh Ambani to act as a white knight by picking up 14.8 per cent stake in the company. The promoters hold 34.4 per cent.

In an indirect reference to that bitterness, Deveshwar said ITC being a shareholder should be a compliment for rivals. “But so far from what I understand, they have not taken it as a compliment,” he said.

The EIH stock was on fire on Friday. It rose 12.47 per cent to Rs 96.05 in a falling market. EIH Associated Hotels closed 20 per cent up at Rs 165.60. The ITC stock rose 1.09 per cent to Rs 208.30. Market players said the stock saw brisk buying and generated huge volumes in anticipation that ITC and Reliance would compete to increase stake in EIH.

Hotel Leela Venture, another stock in which ITC holds a substantial stake (13 per cent) was, however, not as lucky. The stock ended almost flat at Rs 45.75, possibly because the promoter holding in Leela is a comfortable 54.6 per cent and any takeover war looks unlikely at this point. The Nairs, the promoters of Leela, are planning to sell some stake to private equity players to lower the Rs 2,800- crore debt burden.

Among other beneficiaries of the Takeover Code changes was Viceroy Hotels, which closed the day 9 per cent higher at Rs 34.40. Investor Rakesh Jhunjhunwala holds 11.5 per cent in the company (promoters hold 32.2 per cent).

He will now have room to acquire up to 25 per cent. Interestingly, Sonata Investment, an Anil Ambani group company, holds a 5.9 per cent stake in Viceroy.

Jhunjhunwala figures in another company – Autoline Industries — with over 10 per cent stake. The promoters own 28 per cent. The buzz, however, didn’t help the stock much and it ended flat.