IiAS Advises ITC Shareholders to Reject Hotel Demerger

ITC Limited is an Indian conglomerate company, headquartered in Kolkata. It has a presence across six business segments, namely FMCG, hotels, agribusiness, information technology, paper products, and packaging. The conglomerate is planning to demerge its hotel business, the company has set June 6th at 10:30 AM as the date and time for the shareholders meeting for the approval of the proposed demerger of the hotel business.

Demerger Proposal

ITC approved the Scheme of Arrangement between ITC Ltd and ITC Hotels on August 14, 2023. The scheme mentions the issuing of equity shares by the resultant entity to the shareholders of the demerged counterpart. In a more specific way, for every 10 shares held in the company ITC Ltd, shareholders would be entitled to receive 1 share of ITC Hotels Ltd. 

The main point behind the demerger from the company is that the Hotel Business of ITC has been resilient and matured over the years and has the potential to make its growth path.

IiAS Advised To ITC Shareholders

The proxy advisory firm IiAS has recommended  ITC shareholders to vote against the proposed demerger of the company’s hotel business, citing a lack of significant value unlocking for the hotel segment

IiAS reasoned their recommendation to vote against the demerger, stating, “The proposed structure, while designed to improve ITC’s ratios, provides neither a complete value unlocking for shareholders nor does it materially reduce any capital support responsibilities for the hotel business from ITC.” They also noted that the board of directors lacks clarity on their plan for the 40% holding in the hotel business, whether they intend to eventually sell the equity to a strategic buyer or continue to hold it.

Conclusion: IiAS’s advise to vote against ITC’s proposed demerger of its hotel business has came from concerns over the lack of significant value unlocking for shareholders and the continued capital support required from ITC. In addition to this, the uncertainty surrounding the board’s intentions for the 40% holding in the hotel business further complicates the potential benefits of the demerger, making it an unconvincing proposition for shareholders. The markets are now waiting for the shareholders meeting which is going to take place on June 6th for the approval of the proposed demerger of the hotel business.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.