IANS | 30 Jul, 2023
Fast moving consumer goods (FMCG) major ITC Ltd may be ring-fencing
the proposed hotel company from future hostile takeovers by holding 40
per cent stake in that company, say analysts.
Recently, the ITC Board announced its approval to demerge its hotels' business into a separate company called ITC Hotels Ltd.
As
per the de-merger scheme, ITC will hold 40 per cent stake in ITC Hotels
while the remaining 60 per cent will be held by other shareholders.
ITC Hotels will pay a royalty for using the ITC brand in its name.
"Perhaps
ITC has decided to hold a 40 per cent stake in ITC Hotels to avoid any
hostile takeovers. If they had wanted to exit the business, they could
have exited,” Shobit Singhal, Research Analyst, Anand Rathi Shares and
Stock Brokers, told IANS.
Added Naveen Trivedi, Deputy Vice
President, HDFC Securities: "Hotel is one business that consumes a lot
of capital. The return on the investment will come later. ITC may not
want any hostile takeover of the hotel company when the business starts
giving returns."
While ITC does not have any Indian anchor
promoter group holding a chunk of shares, about 29.10 per cent stake is
held as foreign direct investment (FDI) - Tobacco Manufacturers (India)
Ltd - 23.94 per cent, Rothmans International Enterprises Ltd -1.25 per
cent, and Myddleton Investment Company Ltd - 3.91 per cent.
The
above investment vehicles, as per the de-merger scheme, will hold about
17.4 per cent stake in ITC Hotels and there is a risk of them selling
off that when the company gets listed.
If that happens, it is as
if handing over the business to an acquirer on a platter at a time when
the investments start paying back good.
Analysts cited the hostile takeover of software company Mindtree by L&T couple of years back.
ITC told analysts that it will not buy back the shares from the above shareholders if they decide to exit.
Today,
ITC has over 11,600 keys/rooms in over 120 hotels in over 70 locations.
The company is also building one hotel in Sri Lanka – the first
overseas property.
Soon after the de-merger announcement, the markets reacted adversely and ITC’s share price came down by about three per cent.
Out
of the total capital employed by ITC, about 20 per cent is accounted
for by the hotel business while the EBITA was only about two per cent,
Trivedi said.
According to Singhal, the enterprise value of ITC Hotels could be about Rs 25,000 crore.
