ITC gets green signal from board for planned demerger of hotels business

ITC said the proposed reorganization is designed to provide the new entity with long-term stability and strategic support to drive accelerated growth and value creation.

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ITC Limited, which is involved in cigarettes, hotels, paper and consumer staples businesses, has received board's in-principle approval to demerge its hotels business into a new entity, the conglomerate announced on July 24.

The cigarette-to-soap maker said the wholly-owned subsidiary of the company will be called ITC Hotels Limited or another name that may be approved by the Ministry of Corporate Affairs.

The demerger is aimed to give the diversified conglomerate's shareholders access to unlocking value of the hotels business by providing them a direct stake in the new entity and an independent market-driven assessment of their shares, ITC said.

Also Read: ITC’s hotels demerger fulfils key investor demand, but comes with a twist

ITC further said that the proposed reorganization is designed to provide the new entity with long-term stability and strategic support to drive accelerated growth and value creation. Additionally, the reorganization will facilitate the utilization of cross synergies between the Company and the new entity, it added.

Also Read: ITC dethrones India Unilever unit to become No. 1 consumer stock

Explaining the rationale behind the demerger, ITC in its statement said: 

1) Hotels business has matured over the years; well poised to chart its own growth path as a separate entity
- Asset Right strategy to accelerate growth whilst continuing to leverage ITC’s institutional strengths and brand equity

2) Creation of a separate pure play hotels entity will enable crafting the next horizon of growth & sustained value creation for shareholders
- Sharper business focus anchored on a differentiated strategy aligned with industry specific market dynamics

3) The new entity would operate with an optimal capital structure, with the ability to access equity / debt markets for funding growth requirements
- Ability to attract the right set of investors / strategic partners / collaborations → Investment strategies & risk profiles aligned more sharply with Hospitality industry

4) Unlock Value for ITC shareholders
- Direct stake to existing ITC shareholders in a pure play Hotels entity
- Independent market driven valuation of focused new entity
- Continued access to cross synergies
- Reinforce ITC’s sharper capital allocation strategy (i.e. ‘asset-right’ + higher dividend distribution)

Also Read: ITC Hotels share price pegged at Rs 20, say analysts

ITC stock ended at Rs 469.35 a piece on the NSE on July 24, lower by 4.3 percent from previous close.