 "ITC")
British American Tobacco (BAT), the multinational company that makes and sells cigarettes, tobacco and other nicotine products, on Tuesday said it planned to sell up to 3.5 per cent in ITC by way of block deals on Wednesday.
The stake is equal to 436.9 million shares of the total 12.476 billion outstanding shares of the cigarettes-to-hotels major ITC. ITC's stock fell 1.26 per cent on Tuesday to close at Rs 404 a share. The shares have lost 12.57 per cent of its value since January.
BAT has offered a 5 per cent discount to investors with the block deal price band ranging from Rs 384 to Rs 400.25 a share. The total deal size would range between Rs 16,775 crore and Rs 17,487 crore, according to terms of the transaction.
After the sale, the UK-based firm will own 25.5 per cent in the firm, down from about 29 per cent currently. The London-listed firm will use the net proceeds of the block trades to buy back its own shares over a period ending December 2025, starting with £700 mn (about Rs 7,430 crore) in 2024. BofA Securities India and Citigroup Global Markets India will act as brokers for the transaction.
In a statement, BAT said that ITC was a valued associate in an attractive market with long-term growth potential where BAT benefits from exposure to the world's most populous market. “BAT's initial investment in ITC dates back to the early 1900s and the two companies have a longstanding, mutually beneficial relationship,” the statement said.
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As one of India's leading FMCG enterprises, ITC has delivered significant value for its shareholders and BAT continues to be fully supportive of ITC’s management team, performance and strategy, the BAT statement added.
The shares of BAT were up 3.1 per cent as of 5.30 IST.
Journey of growth
Keeping its stake in ITC above 25 per cent will allow BAT to keep two seats on the Indian company’s board.
Tadeu Marroco, chief executive, BAT, said that the company looked “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,” Morocco said. Ebitda refers to earnings before interest, taxes, depreciation, and amortisation. BAT has over $40 billion in net debt, according to global financial services firm Jefferies.
ITC, which earns a large part of its profit from cigarettes, also owns an information technology company, food products and packaging company. The company is also demerging its hotel business and the current shareholders of ITC would be offered shares in the company.
Over the past three years, the ITC stock returned over three times from bottom to peak, according to a recent note from Jefferies, led by strong cigarette volume growth, scale-up in FMCG, improved capital allocation, and increase in foreign institutional investor holding. These factors, however, have largely played out, the note said, while the cigarette volume growth is moderating now.
In the worst-case scenario, Jefferies sees the stock hitting Rs 340 levels and their best bull-case scenario pegs the stock price at around Rs 520.
