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March 12, 2024

British American Tobacco (BAT) Initiates 3.5% Stake Sale in ITC via Block Trade, Retains 25.5% Shareholding: Insights

In a strategic move aimed at restructuring its investment portfolio, British American Tobacco (BAT), the London-listed tobacco giant, has commenced a 3.5% stake sale in India’s ITC Ltd through a block trade. This transaction, valued at approximately Rs 16,775 crore, equates to around $2.1 billion, marking a significant adjustment in BAT’s holdings within ITC.

The offering comprises 436.9 million shares of ITC, priced in the range of Rs 384 to Rs 400.25 each, presenting a discount of up to 5% from the previous day’s closing price. With this divestiture, BAT’s ownership in ITC is expected to reduce from approximately 29% to 25.5%, as reported by CNBC Awaaz.

BAT’s wholly-owned subsidiary, Tobacco Manufacturers (India) Limited, will facilitate the sale of 43.68 crore shares to institutional investors through an accelerated bookbuild process, subject to customary closing conditions. The company intends to utilize the proceeds from this transaction for a share buyback initiative extending until December 2025.

Tadeu Marroco, CEO of BAT, expressed confidence in maintaining a significant stake in ITC, affirming their commitment to supporting ITC’s growth trajectory. He emphasized BAT’s strategic interest in retaining influence within ITC, particularly as the company navigates evolving market dynamics.

This move aligns with BAT’s broader financial strategy, aimed at optimizing its capital structure and enhancing shareholder value. The decision to initiate a stake sale in ITC underscores BAT’s proactive approach to portfolio management amidst challenging industry conditions.

BAT’s selection of Wall Street investment banks Bank of America and Citigroup to oversee the share sale underscores the significance of this transaction in the global financial landscape. This partnership signals BAT’s commitment to executing the stake sale efficiently and maximizing value for shareholders.

In recent statements, BAT outlined its belief that retaining a 25% stake in ITC would be sufficient to preserve strategic influence, including veto rights. This strategic positioning underscores BAT’s long-term commitment to its investment in ITC, despite recent headwinds faced by the tobacco industry.

BAT’s decision to reallocate its investment portfolio comes at a pivotal time, as the company grapples with declining cigarette volumes across key markets. With a net debt of $40 billion, equivalent to three times its EBITDA and nearly 60% of its market capitalization, BAT’s financial strategy becomes crucial in navigating these challenges.

Despite market fluctuations, shares of ITC closed marginally lower at Rs 404.25 on the day of the announcement. This indicates investor confidence in the resilience of both BAT and ITC amid evolving market dynamics.

In conclusion, BAT’s stake sale in ITC represents a strategic realignment aimed at optimizing its investment portfolio and enhancing shareholder value. As BAT continues to navigate the complexities of the global tobacco industry, this transaction underscores its commitment to sustainable growth and strategic partnership with ITC.

Jhumpa Lahiri

Jhumpa Lahiri

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